As filed with the Securities and Exchange Commission on September 24, 2018.
Registration No. 333-227237
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
KODIAK SCIENCES INC.
(Exact name of Registrant as specified in its charter)
Delaware | 2836 | 27-0476525 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
2631 Hanover Street
Palo Alto, CA 94304
(650) 281-0850
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
D. Victor Perlroth, M.D.
Chairman and Chief
Executive Officer
2631 Hanover Street
Palo Alto, CA 94304
(650) 281-0850
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Jeffrey D. Saper Michael Nordtvedt Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, CA 94304 (650) 493-9300 |
John A. Borgeson Senior Vice President and Chief Financial Officer Kodiak Sciences Inc. 2631 Hanover Street Palo Alto, CA 94304 (650) 281-0850 |
Bruce K. Dallas Stephen Salmon Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, CA 94025 (650) 752-2000 |
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. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | 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 pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
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Title of each Class of Securities to be Registered |
Amount
to be
|
Proposed
Maximum Offering Price Per Share (2) |
Proposed
Offering Price (1)(2) |
Amount of Registration Fee (3) |
||||
Common Stock, par value $0.0001 per share |
10,350,000 |
$15.00 |
$155,250,000 |
$19,329 |
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(1) |
Includes the additional shares that the underwriters have the option to purchase from the registrant, if any. |
(2) |
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended. Includes shares that the underwriters have the option to purchase. |
(3) |
The registrant previously paid $12,450 of the registration fee with the initial filing of this registration statement on September 7, 2018. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated September 24, 2018
9,000,000 Shares
Common Stock
$ per share
Kodiak Sciences Inc. is offering 9,000,000 shares of its common stock. This is our initial public offering and no public market currently exists for our common stock. We expect the initial public offering price to be between $13.00 and $15.00 per share.
We have applied to list our common stock on the Nasdaq Global Market under the symbol KOD.
We are an emerging growth company as defined under the federal securities laws. Investing in our common stock involves risks. See the section of this prospectus titled Risk Factors beginning on page 14.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per
Share |
Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions (1) |
$ | $ | ||||||
Proceeds to Kodiak Sciences Inc. |
$ | $ |
(1) |
See the section of this prospectus titled Underwriting for a description of the compensation payable to the underwriters. |
We have granted the underwriters an option for a period of 30 days to purchase an additional 1,350,000 shares of our common stock to cover over-allotments, if any.
Investment entities affiliated with certain of our principal stockholders and certain of our other existing securityholders have expressed interest in purchasing an aggregate of up to $62.5 million of shares of our common stock in this offering. Indications of interest are not binding commitments to purchase. The underwriters will receive the same underwriting discounts and commissions on any shares purchases by these investment entities as they will on any other shares sold to the public in this offering.
Delivery of the shares of common stock is expected to be made on or about , 2018.
Morgan Stanley |
BofA Merrill Lynch |
Barclays
Chardan
The date of this prospectus is , 2018
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
74 | |||
91 | ||||
153 | ||||
161 |
Page | ||||
176 | ||||
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187 | ||||
Material U.S. Federal Income and Estate Tax Consequences for Non-U.S. Holders of Common Stock |
190 | |||
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201 | ||||
201 | ||||
201 | ||||
F-1 |
We have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters have not authorized any other person to provide you with different or additional information. Neither we nor the underwriters are making an offer to sell shares of our common stock in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
Until and including , 2018 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.
For investors outside of the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
i
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the section titled Risk Factors and the consolidated financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless otherwise stated or the context otherwise indicates, references to Kodiak, we, us, our and similar references refer to Kodiak Sciences Inc. and its subsidiaries taken as a whole.
Overview
We are a clinical stage biopharmaceutical company specializing in novel therapeutics to treat chronic, high-prevalence retinal diseases. Our most advanced product candidate is KSI-301, a biologic therapy built with our antibody biopolymer conjugate, or ABC, platform, which is designed to maintain potent and effective drug levels in ocular tissues. We believe that KSI-301, if approved, has the potential to become an important anti-VEGF therapy in wet age-related macular degeneration, or wet AMD, and diabetic retinopathy, or DR. KSI-301 and our ABC Platform were developed at Kodiak, and we own worldwide rights to those assets, including composition of matter patent protection for KSI-301. We have applied our ABC Platform to develop additional product candidates beyond KSI-301, including KSI-501, our bispecific anti-IL-6/VEGF bioconjugate. We intend to progress these and other product candidates to address high-prevalence ophthalmic diseases.
We initiated our first-in-human, Phase 1 clinical study of KSI-301 in the United States in nine patients in July 2018. We have successfully dosed all patients at the pre-planned dose levels and reached the primary safety and tolerability endpoint of the study. No patients in the Phase 1 study have experienced any serious adverse events. There have been no drug-related adverse events, no dose limiting toxicities and, notably, no intraocular inflammation observed at any dose. Improvements in best corrected visual acuity, or BCVA, and reductions in macular thickness on optical coherence tomography imaging, or OCT, have been observed at all dose levels. Over the four-week follow up period after the single dose, six of nine subjects had achieved a 10 or more letter improvement in BCVA from baseline (defined as average of screening and day one visits). In the high dose cohort of three patients (patients 7, 8, and 9) at the four-week visit, the BCVA improvements from baseline were 13, 10.5, and 29.5 letters, respectively, with associated improvements on macular thickness evidenced on OCT. This suggests that KSI-301, a large antibody biopolymer conjugate, is biologically active at all dose levels tested in patients based on pharmacodynamic measures (OCT imaging of retinal thickness) and efficacy measures (vision improvement). Having successfully met the primary endpoint of safety and tolerability in the Phase 1 study, with the additional observations around bioactivity, we plan to further evaluate the highest dose tested of KSI-301, 5 mg, in a series of global studies in wet AMD and DR, including diabetic macular edema, or DME.
We expect to be dosing patients in a global Phase 2 study of KSI-301 in the United States in early 2019, and clinical trial applications to ex-U.S. regulatory authorities for this study are in progress. This randomized, controlled study in approximately 400 treatment naïve wet AMD patients will evaluate the non-inferiority of intravitreal KSI-301 administered as infrequently as every 16 weeks versus EYLEA (aflibercept) administered on its every 8-week labeled regimen. FDA has indicated that this Phase 2 study, if successful, can be supportive of a marketing application for KSI-301 as one of two pivotal studies in wet AMD required for approval in the United States. We also plan to initiate a Phase 2 clinical trial of KSI-301 in the U.S. and EU in DR patients. We additionally plan to initiate two Phase 2 studies in China, one in wet AMD and one in DR, and we are planning for these studies to have the same clinical design frameworks as our U.S. and EU studies. In parallel to initiating our Phase 2 studies, we intend to expand the scope of our Phase 1 study into a Phase 1b open label study to evaluate the treatment effect and safety of sequential doses of KSI-301 with more intensive ophthalmic imaging and ocular pharmacokinetic assessments.
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Target Indications
Our initial target indications for KSI-301 are wet AMD and DR. Wet AMD is a chronic and progressive disease of the central portion of the retina, known as the macula, which is responsible for sharp central vision and color perception. It is caused by abnormal blood vessels that grow underneath the retina and leak blood and fluid into the macula, causing visual distortion and acute vision loss, which can be permanent. Wet AMD is the leading cause of severe vision loss in adults over the age of 50 in the United States and the European Union, or EU. We estimate the combined prevalence of wet AMD in the United States and the EU to be approximately 2.9 million people. DR is a disease resulting from diabetes, in which chronically elevated blood sugar levels cause progressive damage to blood vessels in the retina. DR is the leading cause of blindness in working age adults in the United States and the EU. We estimate that the number of people in the United States and the EU with DR in 2015 was approximately 28.5 million.
Ongoing and Planned Clinical Development
The following chart summarizes our clinical development plan for our lead product candidate, KSI-301:
For approval in the U.S. and the EU, we anticipate that one additional confirmatory study would be required for each of wet AMD and DR/DME and expect that the design framework for these studies would be similar to the planned Phase 2 studies.
Additional product candidates are in preclinical development. A final lead candidate has been selected for KSI-501, a bispecific antibody biopolymer conjugate being developed for DME and uveitis. KSI-201 (a bispecific antibody biopolymer conjugate) and KSI-401 (a mono-specific antibody biopolymer conjugate) are at the pre-IND stage being developed for treatment resistant wet AMD and dry AMD, respectively.
Current Standard of Care for Wet AMD and DR
Overexpression of vascular endothelial growth factor, or VEGF, in ocular tissues is central to the pathogenesis and clinical manifestations of wet AMD and DR. VEGF is a protein produced by cells that stimulates the formation of new blood vessels, a process called neovascularization, and induces vascular permeability. In wet AMD and DR, fluid that exits from blood vessels causes swelling, or edema, of the retina and loss of vision. This loss of vision can be reversed if treated early with an anti-VEGF agent to suppress VEGF
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signaling. Delayed treatment or undertreatment can result in permanent retinal damage and blindness. To reach effective ocular tissue concentrations, these agents must be injected into the vitreous humor, the jelly-like substance that fills the area between the lens and retina. These injections must occur at regular intervals in order to maintain anti-VEGF effects.
Lucentis (ranibizumab), marketed by Genentech, Inc., a subsidiary of the Roche Group, in the United States and by Novartis AG outside the United States, and EYLEA (aflibercept), marketed by Regeneron Pharmaceuticals, Inc. in the United States and by Bayer HealthCare LLC outside the United States, are anti-VEGF therapies that have become the standard of care for treating wet AMD and severe forms of DR based on pivotal clinical studies in which Lucentis was injected every four weeks and EYLEA was injected every eight weeks (after three initial monthly doses in the case of wet AMD and after five initial monthly doses in the case of DR with DME). Avastin (bevacizumab), marketed for non-ocular indications by Genentech in the United States and by Roche outside of the United States, is an anti-VEGF cancer therapy that shares structural characteristics with Lucentis and is commonly used off-label to treat wet AMD and DR through intravitreal injection dosed every four weeks.
Annual worldwide sales of Lucentis and EYLEA for all indications totaled approximately $9.6 billion in 2017. We believe a substantial majority of these sales were in connection with the treatment of wet AMD and DR. Avastin, which is currently approved and marketed for the treatment of cancer, is also used off-label to treat wet AMD and DR. We estimate that off-label Avastin represents approximately 60% of the U.S. wet AMD market by volume. We believe that an improved anti-VEGF therapy could further increase both adoption of approved therapies and extend the duration patients remain on treatment, and thus, the total addressable market opportunity in wet AMD and DR could be substantial.
Limitations of Current Anti-VEGF Therapies
The limitations of current anti-VEGF therapies include:
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Existing anti-VEGF therapies block VEGF activity effectively but have limited durability. We believe current anti-VEGF therapies maintain potent and effective drug levels in ocular tissues for three to six weeks after injection on average. But typical treatment intervals in real-world clinical practice are longer. When a patients dosing cycle is extended beyond the durability of the anti-VEGF agent, and the amount of drug remaining in the eye falls below therapeutic levels, the disease can progress and cause cumulative and permanent retinal damage. Most wet AMD and DR patients will require protracted anti-VEGF therapy, possibly for life. Under these circumstances, strict adherence to the manufacturers labeled treatment regimen of every four weeks for Lucentis and every eight weeks for EYLEA is challenging. |
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Real-world utilization of current anti-VEGFs results in undertreatment, which diminishes effectiveness. A divergence between the efficacy of Lucentis and EYLEA in pivotal clinical trials and in the real world is evidenced in multiple studies and is increasingly recognized as an important unmet medical need. A 2017 report by the Angiogenesis Foundation suggested that the burden involved in monthly visits for evaluation and treatment causes patients and physicians to extend treatment intervals, which in turn results in undertreatment and visual outcomes that fall short of the results seen in clinical trials. For example, Lucentis was tested and failed to successfully extend the treatment interval to 12-week dosing, with patients going back to pre-treatment baseline or even losing vision at the end of the first year of treatment, on average. The Lucentis U.S. product labeling refers to this regimen as an option which is not as effective as monthly dosing. Recently, the FDA allowed an update to EYLEAs labeling to allow 12-week dosing, but only in the second year of treatment (after one full year of intensive treatment). The labeling refers to it as not as effective as the recommended every 8-week dosing. Even a small deviation from per label dosing can be devastating for vision. Missing as few as one or two injections in a year from EYLEAs recommended dosing, results in almost one line of vision lost. |
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Patients are not sustaining visual acuity gains over the long term. Following exit from tightly controlled clinical trials into the real-world environment, patients, on average, lose all the gains in visual acuity that had been previously achieved. |
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Damage caused by these retinal diseases may be irreversible if anti-VEGF therapy is not initiated early in the disease progression. A study in patients with diabetic macular edema, or DME, a severe form of DR, found that undertreatment in the early course of patients disease may reduce the patients ability to respond to anti-VEGF therapies. |
KSI-301: Our Lead Product Candidate
Our lead product candidate, KSI-301, is a novel, clinical stage anti-VEGF biological agent that combines inhibition of a known pathway with a potentially superior ocular durability profile compared to currently marketed drugs for wet AMD and DR.
KSI-301 is a bioconjugate comprised of two components. The first component is a humanized anti-VEGF monoclonal antibody which binds to human VEGF. The antibody component is designed to be pharmacologically similar to Lucentis. The second component of KSI-301 is an optically clear phosphorylcholine-based biopolymer which is stably attached to the antibody and which is intended to augment the stability and residence time of the bioconjugate in the eye without compromising its anti-VEGF activity.
We believe that KSI-301 can be a highly differentiated treatment with an improved durability profile compared to current anti-VEGF therapies because of its design features and the associated performance benefits we have observed with KSI-301 in pre-clinical studies. These design features include (1) an ultrahigh molecular weight of 950 kilodaltons, or kDa, versus 48 kDa (Lucentis) and 115 kDa (EYLEA) to increase intraocular durability, (2) a phosphorylcholine-based antibody biopolymer conjugate to increase ocular tissue bioavailability while preserving bioactivity, along with increased stability, and (3) an increased formulation strength to deliver higher molar doses of anti-VEGF (7x versus Lucentis and 3.5x versus EYLEA). We believe these qualities of KSI-301 have the potential to translate into clinically meaningful advantages over currently available therapies.
As a result, we believe that KSI-301 will (1) keep patients on-mechanism for longer than currently available anti-VEGF therapies, thereby preventing repeated undertreatment through overextension of treatment intervals, (2) match the required frequency of injections to keep the patients disease quiescent with the frequency of visits that patient and physician behavior suggest is achievable in clinical practice and (3) sustain the strong visual acuity gains of the early intensive treatment phase over the long term and outside of clinical trial contexts. By addressing the primary causes of undertreatment, KSI-301 has the potential to improve and sustain visual acuity outcomes in patients with neovascular conditions of the retina such as wet AMD and DR.
Figure: The structure of KSI-301. The branched phosphorylcholine-based biopolymer is optically clear. The bioactive antibody component is represented by the darker portion in the middle of the image. The two components are stably attached to each other, forming bioconjugate KSI-301.
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KSI-301 Phase 1 Clinical Study
We submitted our IND to the FDA in June 2018 for the use of KSI-301 in patients with retinal vascular diseases (including wet AMD and DR). We initiated our first-in-human, Phase 1, single ascending dose clinical study of KSI-301 in the United States in nine patients with center-involved diabetic macular edema in July 2018. Objectives of this study included assessment of ocular and systemic safety, tolerability, and establishment of a maximum tolerated dose. Three dose levels of KSI-301 were evaluated: 1.25 mg, 2.5 mg, and 5 mg, with 3 patients per cohort. We have successfully dosed all patients at the pre-planned dose levels and reached the primary safety and tolerability endpoint of the study, which occurred after each patient reached the 14-day follow up period following the single injection of KSI-301. The patients are continuing to be followed through a 12-week safety follow-up period. To date, no patients in the Phase 1 study have experienced any serious adverse events. To date, there have been no drug-related adverse events, no dose limiting toxicities and, notably, no intraocular inflammation observed at any dose. The Phase 1 trial in a heavily pre-treated patient population, with eight of nine DME patients having previously received anti-VEGF therapy, was designed to evaluate safety, yet biological activity of our antibody biopolymer conjugate was demonstrated across all dose cohorts. Improvements in BCVA and reductions in macular thickness on OCT have been observed at all dose levels. Over the four-week follow up period after the single dose, six of nine subjects had achieved a 10 or more letter improvement in BCVA from baseline (defined as average of screening and day one visits). In the high dose cohort of three patients (patients 7, 8, and 9) at the four-week visit, the BCVA improvements from baseline were 13, 10.5, and 29.5 letters, respectively, with associated improvements on macular thickness evidenced on OCT. This suggests that KSI-301, a large antibody biopolymer conjugate, is biologically active at all dose levels tested in patients based on pharmacodynamic measures (OCT imaging of retinal thickness) and efficacy measures (vision improvement). Having successfully met the primary endpoint of safety and tolerability in the Phase 1 study, with the additional observations around bioactivity, we plan to further evaluate the highest dose tested of KSI-301, 5 mg, in a series of global studies in wet AMD and DME/DR. Our IND for KSI-301 covers retinal vascular diseases and, in the future, we may also pursue other target indications for KSI-301, such as macular edema due to retinal vein occlusion, choroidal neovascularization due to pathologic myopia, or other diseases for which existing anti-VEGF therapies have been approved.
Experienced Management Team
We are led by a team of experienced pharmaceutical industry executives and recognized experts in retinal disease. Our management team includes co-founder, Chairman and Chief Executive Officer, Victor Perlroth, M.D., Chief Financial Officer, John A. Borgeson, Chief Medical Officer and Chief Development Officer, Jason S. Ehrlich, M.D., Ph.D., and Senior Vice President Discovery Medicine, Hong Liang, Ph.D. Dr. Perlroth was previously a venture partner and entrepreneur-in-residence at MPM Capital, a healthcare venture capital investment firm, and co-founded Avidia Inc., a biopharmaceuticals drug discovery and development company, where he served as general manager and vice president of corporate development. Mr. Borgeson has over 25 years of pharmaceutical experience in finance, strategy and operations at Pfizer Inc. and privately-held biotechnology companies. Dr. Ehrlich is an ophthalmologist and spent 10 years in positions of increasing responsibility at Roche/Genentech, serving most recently in an executive capacity as global head of clinical ophthalmology, where he had oversight and responsibility for numerous clinical development programs and regulatory filings. Dr. Liang has 20 years of experience in research and development in protein therapeutics. She was Senior Director at the Rinat Laboratory of Pfizer where she worked for over 12 years focusing on antibody biologics from the design and discovery stage through Phase 3 clinical development as well as the application of translational biomarkers to drug development.
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Our Strategy
Our goal is to become a leading biopharmaceutical company focused on developing and commercializing therapeutics for the treatment of ophthalmic diseases. The key elements of our strategy are:
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Complete clinical development of KSI-301 for wet AMD and DR . We are devoting a significant portion of our resources and business efforts to the clinical development of KSI-301 for wet AMD and DR. We anticipate initiating a Phase 2 wet AMD study of KSI-301 in the U.S. and EU in early 2019 to evaluate the non-inferiority of intravitreal KSI-301 administered as infrequently as every 16-weeks versus EYLEA. The FDA has indicated that this study, KSI-CL-102, if successful, can be supportive of a marketing application for KSI-301. We are thus designing and intend to execute this Phase 2 study as a pivotal study. We also plan to initiate a Phase 2 clinical trial of KSI-301 in the U.S. and EU in DR patients. We also plan to initiate two Phase 2 studies in China, one in wet AMD and one in DR, and we are planning for these studies to have the same clinical design frameworks as our U.S. and EU studies. We plan to perform an administrative interim analysis of our Phase 2 data after approximately 200 patients (100 on KSI-301 and 100 on EYLEA) have been treated for approximately 6 months, to evaluate both the comparative vision outcomes at that point for KSI-301 and EYLEA as well as the KSI-301 Q16W (once every 16 weeks)/Q12W (once every 12 weeks) durability proportion. We expect to undertake this administrative interim analysis in our China Phase 2 studies but plan to include the potential for this interim analysis in our global Phase 2 wet AMD protocol as well. We may use the results of this interim analysis to inform future activities related to KSI-301. In parallel to our Phase 2 programs, we are expanding the scope of our Phase 1 study into a Phase 1b open label design to evaluate the safety and treatment effect of sequential doses of KSI-301 in patients with wet AMD and DR. |
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Establish market acceptance of KSI-301 in wet AMD and DR . We believe that if KSI-301 is approved and is shown to have comparable efficacy and improved durability to other anti-VEGF therapies, it will compete favorably with other marketed products for wet AMD and DR. In addition, we believe KSI-301 may potentially expand the market reach to patients not currently on approved standard of care therapies or not currently on therapy at all. |
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Seek to expand the use of KSI-301 in DR beyond DME . We intend to explore the use of KSI-301 in the treatment of all subtypes of DR patients. Currently marketed anti-VEGFs are used primarily to treat late and advanced manifestations of DR, particularly DME. We believe that the improved durability of KSI-301 has the potential to not only improve the standard of care but also expand the patient population that receives anti-VEGF therapy to include patients with less severe forms of DR for whom frequent injections may be a barrier to adoption. |
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Commercialize KSI-301 with our own specialty sales force . KSI-301 is wholly-owned by us. If KSI-301 receives marketing approval, we plan to commercialize it in the United States with our own focused, specialty sales force. We believe that retinal specialists in the United States, who perform most of the medical procedures involving retinal diseases, are sufficiently concentrated that we will be able to effectively promote KSI-301 with a sales and marketing group of fewer than 200 people. We expect to explore collaboration, distribution or other marketing arrangements with one or more third parties to commercialize KSI-301 in markets outside the United States. |
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Advance the development of our other ABC product candidates . We intend to continue deploying capital to selectively develop our own portfolio of product candidates based on our ABC Platform (including bispecific inhibitors such as KSI-501). We may partner with biotechnology and pharmaceutical companies to further develop our ABC Platform and product candidates. |
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Discover and develop future product candidates for areas of unmet need . We intend to continue our discovery efforts and deepen our pipeline of medicines for high prevalence ophthalmic diseases. We may opportunistically in-license or acquire the rights to complementary products, other product candidates and technologies to aid in the treatment of a range of ophthalmic diseases, principally diseases of the retina. |
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Risks Associated with Our Business
Our business is subject to numerous risks, including those described in the section titled Risk Factors immediately following this prospectus summary. These risks include, among others:
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We are in the early clinical stage of drug development and have a very limited operating history and no products approved for commercial sale. |
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We have incurred significant net losses in each period since our inception and anticipate that we will continue to incur net losses for the foreseeable future. |
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We may encounter substantial delays in our clinical trials or may not be able to conduct or complete our clinical trials on the timelines we expect, if at all. |
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If we fail to obtain additional financing, we may be unable to complete the development and, if approved, commercialization of our product candidates. |
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We are heavily dependent on the successful development of our ABC Platform and our primary product candidate, KSI-301, which is in the early stages of clinical development. |
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We may not be successful in our efforts to continue to create a pipeline of product candidates or to develop commercially successful products. |
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We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective than ours. |
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If we are unable to obtain and maintain patent protection for any product candidates we develop or for our ABC Platform, our competitors could develop and commercialize products or technology similar or identical to ours. |
Corporate Information
We were organized in Delaware as a limited liability company in June 2009 under the name Oligasis, LLC. In September 2015, we converted to a Delaware corporation and changed our name to Kodiak Sciences Inc. Our principal executive office is located at 2631 Hanover Street, Palo Alto, California 94304. Our telephone number is (650) 281-0850. Our website is www.kodiak.com. Information contained in, or that can be accessed through, our website is not a part of, and is not incorporated into, this prospectus.
We use Kodiak, Kodiak Sciences, the Kodiak logo, and other marks as trademarks in the United States and other countries. This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.
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Implications of Being an Emerging Growth Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. As a result of this status, we have taken advantage of reduced reporting requirements in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies unless we otherwise irrevocably elect not to avail itself of this exemption. However, we have chosen to irrevocably opt out of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.
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The Offering
Common stock offered by us |
9,000,000 shares |
Common stock to be outstanding immediately after this offering |
35,365,855 shares (or 36,715,855 shares if the underwriters exercise their option to purchase additional shares in full) |
Underwriters option to purchase additional shares of common stock from us |
1,350,000 shares |
Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $113.6 million, or approximately $131.2 million if the underwriters exercise their option to purchase additional shares in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. |
We currently expect to use the net proceeds from this offering as follows: (1) approximately $40 million to advance KSI-301 through completion of enrollment of the global Phase 2 clinical trial in the U.S., EU and rest of the world in patients with wet AMD as well as through completion of a Phase 1b clinical trial; (2) approximately $25 million to advance KSI-301 into Phase 2 clinical trials in China for wet AMD and DME/DR and through an administrative interim analysis in each of the studies (anticipated to occur when approximately 200 patients have completed approximately six months of treatment duration, per study); (3) approximately $15 million to advance KSI-301 into the global Phase 2 clinical trial in the U.S., EU and rest of the world in patients with DME/DR; (4) approximately $15 million towards research and development of our pipeline including KSI-501 and to initiate additional clinical studies in ophthalmology; and (5) the remainder for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire, license, and invest in complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transaction. See the section of this prospectus titled Use of Proceeds. |
Indications of interest |
Investment entities affiliated with certain of our principal stockholders and certain of our other existing securityholders have expressed interest in purchasing an aggregate of up to $62.5 million of shares of our common stock in this offering. Indications of interest are not binding commitments to purchase. The underwriters will receive the same underwriting discounts and commissions on any shares purchased by these investment entities as they will on any other shares sold to the public in this offering. |
Directed share program |
At our request, the underwriters have reserved 5% of the shares of common stock to be offered by this prospectus for sale, at the |
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initial public offering price, to directors, officers, employees, business associates and other persons related to us. If purchased by these persons, these shares will not be subject to a lock-up restriction, except in the case of shares purchased by any director, executive officer or employee. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. |
Proposed trading symbol |
KOD |
Risk factors |
See the section of this prospectus titled Risk Factors beginning on page 14 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. |
The number of shares of our common stock outstanding immediately after this offering is based on 7,964,234 shares of common stock outstanding as of June 30, 2018, and excludes:
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3,383,478 shares of common stock issuable upon the exercise of outstanding options as of June 30, 2018 with a weighted-average exercise price of $3.82 per share; |
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shares issuable upon conversion of accrued interest on our outstanding 2017 convertible notes and our outstanding 2018 convertible notes since June 30, 2018; |
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398,693 shares of common stock reserved for future issuance under our 2015 Share Incentive Plan as of June 30, 2018; |
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4,300,000 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part (we anticipate granting options to purchase an aggregate of 1,278,954 shares of common stock on the date of effectiveness of the registration statement of which this prospectus forms a part and, on the effective date of the filing of a registration statement on Form S-8, an award of restricted stock units having a value of approximately $600,000, with the number of restricted stock units determined based on the initial public offering price of our common stock in this offering); and |
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460,000 shares of common stock reserved for future issuance under our 2018 Employee Stock Purchase Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part. |
Except as otherwise indicated, all information in this prospectus assumes:
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the automatic conversion of all of our outstanding shares of redeemable convertible preferred stock into an aggregate of 12,385,154 shares of common stock immediately prior to the closing of this offering; |
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the conversion of the outstanding 2017 convertible notes into an aggregate of 2,497,722 shares of common stock immediately prior to the closing of this offering (assuming conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share); |
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the conversion of the outstanding 2018 convertible notes into an aggregate of 3,018,745 shares of our common stock immediately prior to the closing of this offering (assuming conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at an assumed conversion price of $11.20 per |
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sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering); |
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the issuance of 500,000 shares of common stock immediately following the closing of this offering issuable upon the exercise of warrants outstanding as of June 30, 2018 at an exercise price of $0.01 per share; |
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no exercise of 3,796,312 options outstanding as of the date of this prospectus, 525,000 of which were granted subsequent to June 30, 2018; |
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the filing of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering; and |
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no exercise of the underwriters option to purchase additional shares. |
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth a summary of our consolidated financial data. The consolidated statement of operations data for the years ended December 31, 2016 and 2017 are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2017 and 2018 and the consolidated balance sheet data as of June 30, 2018 are derived from our unaudited consolidated financial statements and related notes included elsewhere in this prospectus. In the opinion of management, the unaudited data reflects all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the information in Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations. Our historical results are not necessarily indicative of our future results, and the results of operations for the years ended December 31, 2016 and 2017 and any interim period are not necessarily indicative of the results to be expected for any other period. The summary consolidated financial data in this section are not intended to replace the consolidated financial statements and related notes included elsewhere in this prospectus.
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands, except share and per
share data) |
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Consolidated Statement of Operations Data: | ||||||||||||||||
Operating expenses: |
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Research and development |
$ | 14,053 | $ | 22,022 | $ | 10,098 | $ | 7,233 | ||||||||
General and administrative |
3,098 | 3,499 | 1,687 | 3,404 | ||||||||||||
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Total operating expenses |
17,151 | 25,521 |
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11,785 |
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10,637 |
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Loss from operations |
(17,151 | ) | (25,521 | ) | (11,785 | ) | (10,637 | ) | ||||||||
Interest expense |
(6 | ) | (1,185 | ) | (12 | ) | (3,347 | ) | ||||||||
Other income (expense), net |
25 | (1,230 | ) | 14 | (2,345 | ) | ||||||||||
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Net loss and comprehensive loss |
$ | (17,132 | ) | $ | (27,936 | ) | $ | (11,783 | ) | $ | (16,329 | ) | ||||
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Net loss per share attributable to common stockholders, basic and diluted |
$ | (2.38 | ) | $ | (3.72 | ) | $ | (1.58 | ) | $ | (2.11 | ) | ||||
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Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted |
7,211,360 | 7,515,336 | 7,444,612 | 7,720,967 | ||||||||||||
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Pro forma net loss per share attributable to common stockholders, basic and diluted (1) |
$ | (1.21 | ) | $ | (0.41 | ) | ||||||||||
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Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted (1) |
21,074,940 | 25,569,847 | ||||||||||||||
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As of June 30, 2018 | ||||||||||||
Actual | Pro Forma (2) |
Pro Forma As
Adjusted (3) |
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(in thousands) | ||||||||||||
Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ | 17,641 | $ | 17,641 | $ | 132,080 | ||||||
Working capital (4) |
13,617 | 13,617 | 129,310 | |||||||||
Total assets |
21,703 | 21,703 | 133,988 | |||||||||
Convertible notes |
39,495 | | | |||||||||
Redeemable convertible preferred stock warrant liability |
4,005 | | | |||||||||
Derivative instrument |
7,367 | | | |||||||||
Total liabilities |
55,913 | 5,046 | 3,751 | |||||||||
Redeemable convertible preferred stock |
50,017 | | | |||||||||
Accumulated deficit |
(85,652 | ) | (92,750 | ) | (92,750 | ) | ||||||
Total stockholders (deficit) equity |
(84,227 | ) | 16,657 | 130,237 |
(1) |
For the calculation of our pro forma net loss per share and pro forma weighted-average shares outstanding, see Note 14 to our consolidated financial statements included elsewhere in this prospectus. |
(2) |
Reflects, on a pro forma basis, (1) the automatic conversion of the redeemable convertible preferred stock into 12,385,154 shares of common stock as of June 30, 2018, (2) the assumed conversion of the outstanding 2017 convertible notes into an aggregate of 2,497,722 shares of our common stock immediately prior to the closing of this offering (assuming conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share), (3) the automatic conversion of the outstanding 2018 convertible notes into an aggregate of 3,018,745 shares of our common stock immediately prior to the closing of this offering (assuming conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering), (4) the resulting settlement of the derivative instrument upon the conversion of the 2018 convertible notes and the estimated $7.1 million impact to accumulated deficit (assuming an initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus) as a result of the fair value adjustment to the derivative and loss on extinguishment of the 2018 convertible notes, (5) the automatic conversion of warrants to purchase 500,000 shares of our Series B redeemable convertible preferred stock as of June 30, 2018 into warrants to purchase an equivalent number of shares of our common stock and assuming the exercise of the common stock warrants immediately following the closing of this offering, and (6) the filing of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering. |
(3) |
Reflects, on a pro forma as adjusted basis, the pro forma conversion adjustments described in footnote (2) above, as well as the sale and issuance by us of 9,000,000 shares of common stock in this offering at the assumed initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders (deficit) equity by approximately $8.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders (deficit) equity by $13.0 million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing. |
(4) |
We define working capital as current assets less current liabilities. See our consolidated financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and the section of this prospectus titled Managements Discussion and Analysis of Financial Condition and Results of Operations, before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to Our Business, Financial Condition and Capital Requirements
We are in the early clinical stage of drug development and have a very limited operating history and no products approved for commercial sale, which may make it difficult to evaluate our current business and predict our future success and viability.
We are a clinical stage biopharmaceutical company specializing in novel therapeutics to treat chronic, high-prevalence retinal diseases. We commenced operations in June 2009, have no products approved for commercial sale and have not generated any revenue. Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We met the primary endpoint for our ongoing Phase 1 clinical trial for our most advanced product candidate, KSI-301, in September 2018, but have not initiated clinical trials for any of our other product candidates. To date, we have not completed a clinical trial (including a pivotal clinical trial), obtained marketing approval for any product candidates, manufactured a commercial scale product or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Our limited operating history as a company and early stage of drug development make any assessment of our future success and viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, and we have not yet demonstrated an ability to successfully overcome such risks and difficulties. If we do not address these risks and difficulties successfully, our business will suffer.
We have incurred significant net losses in each period since our inception and anticipate that we will continue to incur significant and increasing net losses for the foreseeable future.
We have incurred net losses in each reporting period since our inception, including net losses of $11.8 million and $16.3 million for the six months ended June 30, 2017 and 2018, respectively. As of June 30, 2018, we had an accumulated deficit of $85.7 million.
We have invested significant financial resources in research and development activities, including for our product candidates and our ABC Platform. We do not expect to generate revenue from product sales for several years, if at all. The amount of our future net losses will depend, in part, on the level of our future expenditures and our ability to generate revenue. Moreover, our net losses may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.
We expect to continue to incur significant and increasingly higher expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
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progress our current and any future product candidates through preclinical and clinical development; |
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work with our contract manufacturers to scale up the manufacturing processes for our product candidates or, in the future, establish and operate a manufacturing facility; |
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continue our research and discovery activities; |
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continue the development of our ABC Platform; |
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initiate and conduct additional preclinical, clinical or other studies for our product candidates; |
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change or add additional contract manufacturers or suppliers; |
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seek regulatory approvals and marketing authorizations for our product candidates; |
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establish sales, marketing and distribution infrastructure to commercialize any products for which we obtain approval; |
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acquire or in-license product candidates, intellectual property and technologies; |
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make milestone, royalty or other payments due under any current or future collaboration or license agreements; |
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obtain, maintain, expand, protect and enforce our intellectual property portfolio; |
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attract, hire and retain qualified personnel; |
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experience any delays or encounter other issues related to our operations; |
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meet the requirements and demands of being a public company; and |
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defend against any product liability claims or other lawsuits related to our products. |
Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders deficit and working capital. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
As of June 30, 2018, we had cash and cash equivalents of $17.6 million. Without giving effect to the anticipated net proceeds from this offering, we do not believe that those cash and cash equivalents will be sufficient to enable us to fund our current operations for at least one year from the original issuance date of our consolidated financial statements for the period ended June 30, 2018. We believe that this raises substantial doubt about our ability to continue as a going concern. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for additional information on our assessment. Similarly, the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2017 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.
Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We have never generated any revenue from product sales, and we may never generate revenue or be profitable.
We have no products approved for commercial sale and have not generated any revenue from product sales. We do not anticipate generating any revenue from product sales until after we have successfully completed clinical development and received regulatory approval for the commercial sale of a product candidate, if ever.
Our ability to generate revenue and achieve profitability depends significantly on many factors, including:
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successfully completing research and preclinical and clinical development of our product candidates; |
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obtaining regulatory approvals and marketing authorizations for product candidates for which we successfully complete clinical development and clinical trials; |
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developing a sustainable and scalable manufacturing process for our product candidates, as well as establishing and maintaining commercially viable supply relationships with third parties that can provide adequate products and services to support clinical activities and any commercial demand for our product candidates; |
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identifying, assessing, acquiring and/or developing new product candidates; |
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negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; |
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launching and successfully commercializing product candidates for which we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales, marketing and distribution infrastructure; |
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obtaining and maintaining an adequate price for our product candidates, both in the United States and in foreign countries where our products are commercialized; |
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obtaining adequate reimbursement for our product candidates from payors; |
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obtaining market acceptance of our product candidates as viable treatment options; |
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addressing any competing technological and market developments; |
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maintaining, protecting, expanding and enforcing our portfolio of intellectual property rights, including patents, trade secrets and know-how; and |
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attracting, hiring and retaining qualified personnel. |
Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the U.S. Food and Drug Administration, or FDA, or foreign regulatory agencies, to perform studies in addition to those that we currently anticipate, or if there are any delays in any of our or our future collaborators clinical trials or the development of any of our product candidates. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate and ongoing compliance efforts.
Even if we are able to generate revenue from the sale of any approved products, we may not become profitable, and we will need to obtain additional funding through one or more debt or equity financings in order to continue operations. Revenue from the sale of any product candidate for which regulatory approval is obtained will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price and whether we own the commercial rights for that territory. If the number of addressable patients is not as significant as we anticipate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Our failure to become and remain profitable could decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations and cause a decline in the value of our common stock, all or any of which may adversely affect our viability.
If we fail to obtain additional financing, we may be unable to complete the development and, if approved, commercialization of our product candidates.
Our operations have required substantial amounts of cash since inception. To date, we have financed our operations primarily through the sale of equity securities and convertible notes. Developing our product candidates is expensive, and we expect to substantially increase our spending as we advance KSI-301 into Phase 2 clinical trials. Even if we are successful in developing our product candidates, obtaining regulatory approvals and launching and commercializing any product candidate will require substantial additional funding beyond the net proceeds from this offering.
As of June 30, 2018, we had $17.6 million in cash and cash equivalents. We estimate that our net proceeds from this offering will be approximately $113.6 million, based on the assumed initial public offering price of $14.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Although we believe that our existing cash and cash equivalents along with the anticipated net proceeds from this offering will be sufficient to fund our projected operations through at least the next 12 months, our estimate as to how long we expect our existing cash and cash equivalents to be available to fund our operations is based on assumptions that may prove inaccurate, and we could use our available capital
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resources sooner than we currently expect. In addition, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may need to raise additional funds sooner than we anticipate if we choose to expand more rapidly than we presently anticipate.
We will require additional capital for the further development and, if approved, commercialization of our product candidates. Additional capital may not be available when we need it, on terms acceptable to us or at all. We have no committed source of additional capital. If adequate capital is not available to us on a timely basis, we may be required to significantly delay, scale back or discontinue our research and development programs or the commercialization of any product candidates, if approved, or be unable to continue or expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations and cause the price of our common stock to decline.
Due to the significant resources required for the development of our product candidates, and depending on our ability to access capital, we must prioritize development of certain product candidates. Moreover, we may expend our limited resources on product candidates that do not yield a successful product and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Due to the significant resources required for the development of our product candidates, we must decide which product candidates and indications to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties in respect of certain product candidates may subsequently also prove to be suboptimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the viability or market potential of any of our product candidates or misread trends in the biopharmaceutical industry, in particular for retinal diseases, our business, financial condition and results of operations could be materially adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases and disease pathways that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization rights.
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
Our prospects are heavily dependent on KSI-301, which is in the early stages of clinical development and is the only product candidate that we expect to be in clinical development in the near term.
KSI-301 is our only product candidate that we expect to be in clinical studies in the near term. We initiated an ongoing Phase 1 clinical trial of KSI-301 in July 2018 and reached the primary endpoint in September 2018. Neither KSI-301 nor any of our other product candidates has been dosed in a pivotal clinical trial, and it may be years before any such trial is completed, if at all. Further, we cannot be certain that either KSI-301 or any of our product candidates will be successful in clinical trials.
Our early encouraging preclinical and Phase 1 clinical trial results for KSI-301 are not necessarily predictive of the results of our ongoing or future discovery programs or clinical studies. Our Phase 1 clinical trial was designed to evaluate safety and tolerability of KSI-301. Although it has yielded early evidence of bioactivity, it consisted of only nine subjects, and we expect that our Phase 2 trials will have materially different design parameters. For example, our Phase 1 trial did not evaluate durability of KSI-301 across the planned 12 or 16 week dosing intervals that we intend to evaluate in our Phase 2 trials. Promising results in preclinical studies and Phase 1 clinical trials of a drug candidate may not be predictive of similar results in later-stage preclinical studies or in humans during clinical studies. Many companies in the pharmaceutical and biotechnology industries have
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suffered significant setbacks in late-stage clinical studies after achieving positive results in early-stage development, including early-stage clinical studies, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical studies were underway or safety or efficacy observations made in preclinical studies and clinical studies, including previously unreported adverse events.
There can be significant variability in safety or efficacy results between different clinical studies of the same product candidate due to numerous factors, including changes in study procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical study protocols and the rate of dropout among clinical study participants. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical studies nonetheless failed to obtain FDA approval.
We may in the future advance product candidates into clinical trials and terminate such trials prior to their completion. While we have certain preclinical programs in development and intend to develop other product candidates, it will take additional investment and time for such programs to reach the same stage of development as KSI-301.
A failure of KSI-301 in clinical development may require us to discontinue development of other product candidates based on our ABC Platform.
If KSI-301 fails in development as a result of any underlying problem with our platform, then we may discontinue development of some or all of our product candidates that are based our ABC Platform. If we discontinue development of KSI-301, or if KSI-301 were to fail to receive regulatory approval or were to fail to achieve sufficient market acceptance, we could be prevented from or significantly delayed in achieving profitability.
Research and development of biopharmaceutical products is inherently risky. We cannot give any assurance that any of our product candidates will receive regulatory, including marketing, approval, which is necessary before they can be commercialized.
We are at an early stage of development of our product candidates. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our product candidates, and we may fail to do so for many reasons, including the following:
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our product candidates may not successfully complete preclinical studies or clinical trials; |
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a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; |
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our competitors may develop therapeutics that render our product candidates obsolete or less attractive; |
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our competitors may develop platform technologies that render our ABC Platform obsolete or less attractive; |
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the product candidates and ABC Platform that we develop may not be sufficiently covered by intellectual property for which we hold exclusive rights or may be covered by third party patents or other intellectual property or exclusive rights; |
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the market for a product candidate may change so that the continued development of that product candidate is no longer reasonable or commercially attractive; |
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a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; |
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if a product candidate obtains regulatory approval, we may be unable to establish sales and marketing capabilities, or successfully market such approved product candidate, to gain market acceptance; and |
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a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable. |
If any of these events occur, we may be forced to abandon our development efforts for a product candidate or candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. Failure of a product candidate may occur at any stage of preclinical or clinical development, and, because our product candidates and our ABC Platform are in an early stage of development, there is a relatively higher risk of failure and we may never succeed in developing marketable products or generating product revenue.
We may not be successful in our efforts to further develop our ABC Platform and current product candidates. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. Each of our product candidates is in the early stages of development and will require significant additional clinical development, management of preclinical, clinical, and manufacturing activities, regulatory approval, adequate manufacturing supply, a commercial organization, and significant marketing efforts before we generate any revenue from product sales, if at all. Any clinical studies that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates. If the results of our ongoing or future clinical studies are inconclusive with respect to the efficacy of our product candidates or if we do not meet the clinical endpoints with statistical significance or if there are safety concerns or adverse events associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for our product candidates.
If any of our product candidates successfully completes clinical trials, we generally plan to seek regulatory approval to market our product candidates in the United States, the European Union, or EU, and in additional foreign countries where we believe there is a viable commercial opportunity. We have never commenced, compiled or submitted an application seeking regulatory approval to market any product candidate. We may never receive regulatory approval to market any product candidates even if such product candidates successfully complete clinical trials, which would adversely affect our viability. To obtain regulatory approval in countries outside the United States, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing, and distribution of our product candidates. We may also rely on our collaborators or partners to conduct the required activities to support an application for regulatory approval, and to seek approval, for one or more of our product candidates. We cannot be sure that our collaborators or partners will conduct these activities successfully or do so within the timeframe we desire. Even if we (or our collaborators or partners) are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. If we are unable to obtain approval for our product candidates in multiple jurisdictions, our revenue and results of operations could be negatively affected.
Even if we receive regulatory approval to market any of our product candidates, we cannot assure you that any such product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. That approval may be for indications or patient populations that are not as broad as intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We may also be required to perform additional or unanticipated clinical studies to obtain approval or be subject to additional post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation Strategy, or REMS. The failure to obtain timely regulatory approval of product candidates, any product marketing limitations or a product withdrawal would negatively impact our business, results of operations and financial condition.
Investment in biopharmaceutical product development involves significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide any assurance that we will be able to successfully advance any of our
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product candidates through the development process or, if approved, successfully commercialize any of our product candidates.
We may encounter substantial delays in our clinical trials, or may not be able to conduct or complete our clinical trials on the timelines we expect, if at all.
Clinical testing is expensive, time consuming, and subject to uncertainty. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. We cannot be sure that submission of an investigational new drug application, or IND, or a clinical trial application, or CTA, will result in the FDA, European Medicines Agency, or EMA, the China Drug Authority, or CDA, or any other regulatory authority as applicable, allowing clinical trials to begin in a timely manner, if at all. Moreover, even if these trials begin, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical trials can occur at any stage of testing, and our future clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of clinical trials include:
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inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; |
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delays in reaching a consensus with regulatory agencies on study design or, in the case of in China, the registration category for the drug candidate to be studied in the clinical trial; |
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the determination by the reviewing regulatory authority to require more costly or lengthy clinical trials than we currently anticipate; |
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delays in reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
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delays in identifying, recruiting and training suitable clinical investigators; |
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delays in obtaining required Institutional Review Board, or IRB, approval at each clinical trial site; |
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imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND or amendment, CTA or amendment, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; a negative finding from an inspection of our clinical trial operations or study sites; developments on trials conducted by competitors for related technology that raises FDA, EMA, CDA or any other regulatory authority concerns about risk to patients of the technology broadly; or if the FDA, EMA, CDA or any other regulatory authority finds that the investigational protocol or plan is clearly deficient to meet its stated objectives; |
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delays in identifying, recruiting and enrolling suitable patients to participate in our clinical trials, and delays caused by patients withdrawing from clinical trials or failing to return for post-treatment follow-up; |
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difficulty collaborating with patient groups and investigators; |
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failure by our CROs, other third parties, or us to adhere to clinical trial requirements; |
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failure to perform in accordance with the FDAs or any other regulatory authoritys current good clinical practices, or cGCPs, requirements, or applicable EMA, CDA or other regulatory guidelines in other countries; |
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occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits; |
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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; |
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changes in the standard of care on which a clinical development plan was based, which may require new or additional trials; |
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the cost of clinical trials of our product candidates being greater than we anticipate; |
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clinical trials of our product candidates producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon development of such product candidates; |
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transfer of manufacturing processes to larger-scale facilities operated by a contract manufacturing organization, or CMO, or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process; and |
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delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical trials or the inability to do any of the foregoing. |
Any inability to successfully initiate or complete clinical trials could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the data safety monitoring board for such trial or by the FDA, EMA, CDA or any other regulatory authority, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA, CDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Delays in the commencement or completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.
Adverse events or other undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA, CDA or other comparable foreign regulatory authorities.
During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were not observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by patients. Many times, side effects are only detectable after investigational products are tested in large-scale, Phase 3
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clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that any of our product candidates has side effects or causes serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked, which would severely harm our business, prospects, operating results and financial condition.
Our most advanced product candidate, KSI-301, is an anti-VEGF biologic that we intend to study in wet AMD and diabetic retinopathy, or DR. There are some potential side effects associated with intravitreal anti-VEGF therapies such as intraocular hemorrhage, intraocular pressure elevation, retinal detachment, inflammation or infection inside the eye and over-inhibition of VEGF, as well as the potential for potential systemic side effects such as heart attack, stroke, wound healing, and high blood pressure. Recent trends in the development of anti-VEGF therapies have favored increased molar dosages, as compared to currently marketed treatments. To date these heightened dosages have not exhibited a safety profile significantly worse than that of current treatments. However, anti-VEGF product candidates featuring higher molar dosages, including KSI-301, may heighten the risk of adverse effects associated with anti-VEGF treatments generally, both in the eye and in the rest of the body. There are risks inherent in the intravitreal injection procedure of drugs like KSI-301 which can cause injury to the eye and other complications including conjunctival hemorrhage, punctate keratitis, eye pain, conjunctival hyperemia, intra-ocular inflammation, and endophthalmitis.
Drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study and/or result in potential product liability claims. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical trial participants, costs due to related litigation, distraction of managements attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the inability to commercialize our product candidates and decreased demand for our product candidates, if approved for commercial sale.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects or adverse events caused by such products, a number of potentially significant negative consequences could result, including but not limited to:
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regulatory authorities may withdraw approvals of such product; |
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regulatory authorities may require additional warnings on the label; |
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we may be required to change the way the product is administered or conduct additional clinical trials or post-approval studies; |
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we may be required to create a Risk Evaluation and Mitigation Strategy plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use; |
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we could be sued and held liable for harm caused to patients; and |
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our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations, and prospects.
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We may encounter difficulties enrolling patients in our clinical trials, and our clinical development activities could thereby be delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including:
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the size and nature of the patient population; |
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the patient eligibility criteria defined in the protocol, including certain highly-specific criteria related to stage of disease progression, which may limit the patient populations eligible for our clinical trials to a greater extent than competing clinical trials for the same indication that do not have such patient eligibility criteria; |
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the size of the study population required for analysis of the trials primary endpoints; |
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the proximity of patients to a trial site; |
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the design of the trial; |
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our ability to recruit clinical trial investigators with the appropriate competencies and experience; |
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competing clinical trials for similar therapies or targeting patient populations meeting our patient eligibility criteria; |
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clinicians and patients perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies and product candidates; |
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our ability to obtain and maintain patient consents; and |
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the risk that patients enrolled in clinical trials will not complete such trials, for any reason. |
For example, because patients with early stages of DR often lack symptoms, it may be challenging to identify and enroll patients at early stages of disease that may be required for a clinical trial. Our inability to enroll a sufficient number of patients for our clinical trials could result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, delay or halt the development of and approval processes for our product candidates and jeopardize our ability to commence sales of and generate revenues from our product candidates, which may harm our business and results of operation.
Our clinical trials may fail to demonstrate substantial evidence of the safety and efficacy or durability of our product candidates, which would prevent, delay or limit the scope of regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. For those product candidates that are subject to regulation as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. This is especially true for anti-VEGF biologic agents where Lucentis and EYLEA are established products with accepted safety profiles.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies of our product candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of patients or disease indications may not be predictive of those obtained in another. In some instances, there can be significant variability in safety, efficacy or durability results between different clinical trials of the same product candidate due to numerous factors, including changes in trial
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procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. Product candidates in later stages of clinical trials may fail to show the desired safety, efficacy and durability profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.
We may be unable to design and execute clinical trials that supports marketing approval. We cannot be certain that our planned clinical trials or any other future clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. Even if regulatory approval is secured for any of our product candidates, the terms of such approval may limit the scope and use of our product candidate, which may also limit its commercial potential.
We may not be successful in our efforts to continue to create a pipeline of product candidates or to develop commercially successful products. If we fail to successfully identify and develop additional product candidates, our commercial opportunity may be limited.
One of our strategies is to identify and pursue clinical development of additional product candidates through our ABC Platform. Our ABC Platform may not produce a pipeline of viable product candidates, or our competitors may develop platform technologies that render our ABC Platform obsolete or less attractive. Our research methodology may be unsuccessful in identifying potential product candidates, or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make them unmarketable or unlikely to receive marketing approval. Identifying, developing, obtaining regulatory approval and commercializing additional product candidates for the treatment of retinal diseases will require substantial additional funding beyond the net proceeds of this offering and is prone to the risks of failure inherent in drug development. If we are unable to successfully identify, acquire, develop and commercialize additional product candidates, our commercial opportunity may be limited.
We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may retain their market share with existing drugs, or achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective than ours, which may negatively impact our ability to successfully market or commercialize any product candidates we may develop and ultimately harm our financial condition.
The development and commercialization of new drug products is highly competitive. We may face competition with respect to any product candidates that we seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.
There are a number of large pharmaceutical and biotechnology companies that are currently pursuing the development of products for the treatment of the retinal disease indications for which we have product candidates, including wet AMD and DR. Certain of our competitors have commercially approved products for
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the treatment of retinal diseases that we are pursuing or may pursue in the future, including Roche and Regeneron for the treatment of wet AMD and DR. These drugs are well established therapies and are widely accepted by physicians, patients and third-party payors, which may make it difficult to convince these parties to switch to KSI-301. Companies that we are aware are developing therapeutics in the retinal disease area include large companies with significant financial resources, such as Roche, Novartis, Bayer and Regeneron, Allergan, Mylan and Momenta. In addition to competition from other companies targeting retinal indications, any products we may develop may also face competition from other types of therapies, such as gene-editing therapies and drug delivery devices.
Many of our current or potential competitors, either alone or with their strategic partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our product candidates. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Furthermore, currently approved products could be discovered to have application for treatment of retinal disease indications, which could give such products significant regulatory and market timing advantages over any of our product candidates. Our competitors also may obtain FDA, EMA, CDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. Additionally, products or technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors.
In addition, we could face litigation or other proceedings with respect to the scope, ownership, validity and/or enforceability of our patents relating to our competitors products and our competitors may allege that our products infringe, misappropriate or otherwise violate their intellectual property. For more information regarding potential disputes concerning intellectual property, see the subsection titled Risks Related to Our Intellectual Property.
The manufacture of our product candidates is highly complex and requires substantial lead time to produce.
Manufacturing our product candidates involves complex processes, including developing cells or cell systems to produce the biologic, growing large quantities of such cells, and harvesting and purifying the biologic produced by them. These processes require specialized facilities, highly specific raw materials and other production constraints. As a result, the cost to manufacture a biologic is generally far higher than traditional small molecule chemical compounds, and the biologics manufacturing process is less reliable and is difficult to reproduce. Because of the complex nature of our products, we need to oversee manufacture of multiple components that require a diverse knowledge base and specialized personnel.
Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as our product candidates generally cannot be adequately characterized prior to manufacturing the final product. As a result, an assay of the finished product is not sufficient to ensure that the product will perform in the intended manner. Accordingly, we expect to employ multiple steps to attempt to control our manufacturing process to assure that the process works and the product or product candidate is made strictly and consistently in compliance with the process
Manufacturing biologics is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, improper storage or transfer, inconsistency in yields and variability in product characteristics. Even minor deviations from normal manufacturing, distribution or storage processes could result in reduced production yields, product defects and
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other supply disruptions. Some of the raw materials required in our manufacturing process are derived from biological sources. Such raw materials are difficult to procure and may also be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt commercialization. Production of additional drug substance and drug product for any of our product candidates may require substantial lead time. For example, currently any new large-scale batches of KSI-301 would require at least 12 months to manufacture. In the event of significant product loss and materials shortages, we may be unable to produce adequate amounts of our product candidates or products for our operational needs.
Further, as product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.
These challenges are magnified by the international nature of our supply chain, which, for KSI-301, requires drug substance and drug product sourced from single source suppliers from China, Japan, the United Kingdom, and Switzerland.
We have no experience manufacturing any of our product candidates at a commercial scale. If we or any of our third-party manufacturers encounter difficulties in production, or fail to meet rigorously enforced regulatory standards, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to establish a commercially viable cost structure.
In order to conduct clinical trials of our product candidates, or supply commercial products, if approved, we will need to manufacture them in small and large quantities. Our third-party manufacturer has made only a limited number of lots of KSI-301 to date and has not made any commercial lots. The manufacturing processes for KSI-301 have never been tested at commercial scale, the process validation requirement (the requirement to consistently produce the active pharmaceutical ingredient used in KSI-301 in commercial quantities and of specified quality on a repeated basis and document its ability to do so) has not yet been satisfied. Our manufacturing partners may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If our manufacturing partners are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of our product candidates may be delayed or become infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business. The same risks would apply to any internal manufacturing facilities, should we in the future decide to build internal manufacturing capacity.
In addition, the manufacturing process for any products that we may develop is subject to FDA, EMA, CDA and foreign regulatory authority approval processes and continuous oversight. We will need to contract with manufacturers who can meet all applicable FDA, EMA, CDA and foreign regulatory authority requirements, including complying with current good manufacturing practices, or cGMPs, on an ongoing basis. If we or our third-party manufacturers are unable to reliably produce products to specifications acceptable to the FDA, EMA, CDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA, EMA, CDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
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If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing and commercial support infrastructure to sell, or participate in sales activities with our collaborators for, some of our product candidates if and when they are approved.
There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our commercialization personnel.
Factors that may inhibit our efforts to commercialize any approved product on our own include:
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our inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs and other support personnel; |
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the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future approved products; |
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the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement, and other acceptance by payors; |
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the inability to price our products at a sufficient price point to ensure an adequate and attractive level of profitability; |
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restricted or closed distribution channels that make it difficult to distribute our products to segments of the patient population; |
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and |
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unforeseen costs and expenses associated with creating an independent commercialization organization. |
If we enter into arrangements with third parties to perform sales, marketing, commercial support and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates if approved.
Even if any product candidates we develop receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors and others in the medical community. Even if any product candidates we may develop receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors, and others in the medical community. The degree of market acceptance
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of any product candidates we may develop, if approved for commercial sale, will depend on a number of factors, including:
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the efficacy and safety of such product candidates as demonstrated in pivotal clinical trials and published in peer-reviewed journals; |
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the potential and perceived advantages compared to alternative treatments; |
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the ability to offer our products for sale at competitive prices; |
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the ability to offer appropriate patient access programs, such as co-pay assistance; |
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the extent to which physicians recommend our products to their patients; |
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convenience and ease of dosing and administration compared to alternative treatments; |
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the clinical indications for which the product candidate is approved by FDA, EMA, CDA or other regulatory agencies; |
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product labeling or product insert requirements of the FDA, EMA, CDA or other comparable foreign regulatory authorities, including any limitations, contraindications or warnings contained in a products approved labeling; |
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restrictions on how the product is distributed; |
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the timing of market introduction of competitive products; |
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publicity concerning our products or competing products and treatments; |
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the strength of marketing and distribution support; |
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sufficient third-party coverage or reimbursement; and |
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the prevalence and severity of any side effects. |
If any product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenue, and we may not become profitable.
Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. In the United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval.
Our ability to successfully commercialize any products that we may develop also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs
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by limiting coverage and the amount of reimbursement for particular medications. Government authorities currently impose mandatory discounts for certain patient groups, such as Medicare, Medicaid and Veterans Affairs, or VA, hospitals, and may seek to increase such discounts at any time. Future regulation may negatively impact the price of our products, if approved. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, that the level of reimbursement will be sufficient.
Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. In order to get reimbursement, physicians may need to show that patients have superior treatment outcomes with our products compared to standard of care drugs, including lower-priced generic versions of standard of care drugs. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement levels for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the medicine is approved by the FDA, EMA, CDA or other comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates, and our overall financial condition.
Our product candidates for which we intend to seek approval as biologic products may face competition from biological products that are biosimilar to or interchangeable with our product candidates sooner than anticipated.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsors own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty.
We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than
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anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk when and if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit testing and commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased or interrupted demand for our products; |
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injury to our reputation; |
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withdrawal of clinical trial participants and inability to continue clinical trials; |
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initiation of investigations by regulators; |
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costs to defend the related litigation; |
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a diversion of managements time and our resources; |
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substantial monetary awards to trial participants or patients; |
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product recalls, withdrawals or labeling, marketing or promotional restrictions; |
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loss of revenue; |
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exhaustion of any available insurance and our capital resources; |
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the inability to commercialize any product candidate; and |
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a decline in our share price. |
Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. Our insurance policies may have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
Risks Related to Regulatory Approval and Other Legal Compliance Matters
The regulatory approval processes of the FDA, EMA, CDA and comparable foreign regulatory authorities are lengthy, time consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be substantially harmed.
The time required to obtain approval by the FDA, EMA, CDA and comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and
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depends upon numerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidates clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. We have not submitted for or obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA, EMA, CDA or comparable foreign regulatory authorities may disagree with the design, implementation or results of our clinical trials; |
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the FDA, EMA, CDA or comparable foreign regulatory authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use of our products; |
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the population studied in the clinical program may not be sufficiently broad or representative to assure efficacy and safety in the full population for which we seek approval; |
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we may be unable to demonstrate to the FDA, EMA, CDA or comparable foreign regulatory authorities that a product candidates risk-benefit ratio for its proposed indication, when compared to the standard of care, is acceptable; |
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the FDA, EMA, CDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA, BLA or other submission or to obtain regulatory approval in the United States or elsewhere; |
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the FDA, EMA, CDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and |
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the approval policies or regulations of the FDA, EMA, CDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects.
We plan to conduct clinical trials for our product candidates outside the United States, and the FDA, EMA, CDA and applicable foreign regulatory authorities may not accept data from such trials.
We plan to conduct one or more of our clinical trials outside the United States, including in Europe and in China. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA, EMA, CDA or applicable foreign regulatory authority may be subject to certain conditions. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (1) the data are applicable to the U.S. population and U.S. medical practice and (2) the trials were performed by clinical investigators of recognized competence and pursuant to cGCP regulations. Additionally, the FDAs clinical trial requirements, including sufficient size of patient populations and statistical powering,
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must be met. Many foreign regulatory bodies have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, EMA, CDA or any applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction, including any trials that we may conduct in China. If the FDA, EMA, CDA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming, would delay aspects of our business plan and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA, EMA or CDA grants marketing approval of a product candidate, we would not be permitted to manufacture, market or promote the product candidate in other countries unless and until comparable regulatory authorities in foreign jurisdictions had approved the candidate for use in their countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials. There can be no assurance that any clinical trials conducted in one jurisdiction will be accepted by regulatory authorities in other jurisdictions.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we or any collaborator we work with fail to comply with the regulatory requirements in international markets or fail to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Even if we obtain regulatory approval for a product candidate, our products will remain subject to extensive regulatory scrutiny.
If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers facilities are required to comply with extensive requirements imposed by the FDA, EMA, CDA and comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA, BLA or marketing authorization application, or MAA. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates will be subject to limitations on the approved indicated uses for which the product may be marketed and promoted or to the conditions of approval (including the requirement to implement a Risk Evaluation and Mitigation Strategy), or contain requirements for potentially costly post-marketing testing. We will be required to report certain adverse reactions and production problems, if any, to the FDA, EMA, CDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved
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labeling. We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the products approved label. As such, we may not promote our products for indications or uses for which they do not have approval. The holder of an approved NDA, BLA or MAA must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing approval was obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
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issue warning letters that would result in adverse publicity; |
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impose civil or criminal penalties; |
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suspend or withdraw regulatory approvals; |
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suspend any of our ongoing clinical trials; |
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refuse to approve pending applications or supplements to approved applications submitted by us; |
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impose restrictions on our operations, including closing our contract manufacturers facilities; |
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seize or detain products; or |
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require a product recall. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
Healthcare legislative measures aimed at reducing healthcare costs 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 international jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Affordable Care Act, or ACA, was enacted, which, among other things, subjected biologic products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, 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 governments comparative effectiveness research. Recent changes in the U.S. administration could lead to repeal of or changes in some or all of the ACA, and complying with any new legislation or reversing changes implemented under the ACA could be time-intensive and expensive, resulting in a material adverse effect on our business. Until the ACA is fully implemented or there is more certainty concerning the future of the ACA, it will be difficult to predict its full impact and influence on our business.
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In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in 2013, and will remain in effect through 2025 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at 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:
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the demand for our product candidates, if we obtain regulatory approval; |
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our ability to receive or set a price that we believe is fair for our products; |
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our ability to generate revenue and achieve or maintain profitability; |
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the level of taxes that we are required to pay; and |
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the availability of capital. |
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, lower reimbursement and new payment methodologies. This could lower the price that we receive for any approved product. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient revenue, attain profitability or commercialize our product candidates, if approved.
Our employees, independent contractors, consultants, 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, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA, EMA, CDA and other comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA, EMA, CDA and other comparable foreign regulatory authorities; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws 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 of any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. In particular, research, sales, marketing, education and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. In connection with this offering, we are adopting a code of business conduct and ethics that applies to all our employees, including management, and our directors. However, it is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged
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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. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial conditions could be adversely affected.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations will be subject to various federal and state fraud and abuse laws. The laws that may impact our operations include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons 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, 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. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; |
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federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which impose criminal and civil penalties, including through civil qui tam or whistleblower actions, against individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other third-party payors that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of these statutes or specific intent to violate them in order to have committed a violation; |
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud 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) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; |
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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 use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization; |
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the federal Physician Payment Sunshine Act, created under the ACA, and its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program to report annually to the U.S. Department of Health and Human Services under the Open Payments Program, information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; |
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and |
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analogous state and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair competition laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to file reports with states regarding pricing and marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could, despite our efforts to comply, be subject to challenge under one or more of such laws. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may 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 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 product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If we or any contract manufacturers and suppliers we engage 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 and any contract manufacturers and suppliers we engage are subject to numerous federal, state and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste. 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. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.
Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research, product development and manufacturing efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for
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damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Our business activities may be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery and anti-corruption laws.
Our business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate or may operate in the future, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the Securities and Exchange Commission, or SEC, and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There can be no assurance that all of our employees, agents, contractors or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.
Risks Related to Our Reliance on Third Parties
We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.
We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct some aspects of our research, preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these third parties for research and development activities reduces our control over these activities, but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with cGCPs for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible, reproducible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We are also required to register ongoing clinical trials and to post the results of completed clinical trials on a government-sponsored database within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any product candidates we may develop and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines.
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We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our medicines, producing additional losses and depriving us of potential product revenue.
We contract with third parties for the manufacture of materials for our product candidates and preclinical studies and expect to continue to do so for clinical trials and for commercialization of any product candidates that we may develop. This reliance on third parties carries and may increase the risk that we will not have sufficient quantities of such materials, product candidates or any medicines that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not have any manufacturing facilities. We currently rely exclusively on a third-party manufacturer, Lonza AG, for the manufacture of our materials for preclinical studies and clinical trials and expect to continue to do so for preclinical studies, clinical trials and for commercial supply of any product candidates that we may develop.
We may be unable to establish any further agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
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the possible breach of the manufacturing agreement by the third party or us; |
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the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; |
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the possible early termination of the agreement by us at a time that requires us to pay a cancellation fee; |
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reliance on the third party for regulatory compliance, quality assurance, safety and pharmacovigilance and related reporting; and |
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the inability to produce required volume in a timely manner and to quality standards. |
Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in clinical holds on our trials, sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates or medicines, operating restrictions, and criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business, financial condition, results of operations, and prospects.
Any medicines that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.
Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for any of our product candidates. If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer and may incur added costs and delays in identifying and qualifying any such replacement. Furthermore, securing and reserving production capacity with contract manufacturers may result in significant costs.
Our current and anticipated future reliance upon others for the manufacture of any product candidates we may develop or medicines may adversely affect our future profit margins and our ability to commercialize any medicines that receive marketing approval on a timely and competitive basis.
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Reliance on third parties requires 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.
Reliance on third parties to conduct clinical trials, assist in research and development and to manufacture our product candidates, will at times require us to share trade secrets with them. We seek to protect our proprietary technology by in part entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors 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, including our 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, 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 competitors independent 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.
We rely on third-party suppliers for key raw materials used in our manufacturing processes, and the loss of these third-party suppliers or their inability to supply us with adequate raw materials could harm our business.
We rely on third-party suppliers for the raw materials required for the production of our product candidates. Our reliance on these third-party suppliers and the challenges we may face in obtaining adequate supplies of raw materials involve several risks, including limited control over pricing, availability, quality and delivery schedules. As a small company, our negotiation leverage is limited and we are likely to get lower priority than our competitors who are larger than we are. We cannot be certain that our suppliers will continue to provide us with the quantities of these raw materials that we require or satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or sole sourced raw materials could materially harm our ability to manufacture our product candidates until a new source of supply, if any, could be identified and qualified. We may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could delay the development and potential commercialization of our product candidates, including limiting supplies necessary for clinical trials and regulatory approvals, which would have a material adverse effect on our business.
We may depend on collaborations with third parties for the research, development and commercialization of certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to realize the market potential of those product candidates.
We may seek third-party collaborators for the research, development and commercialization of certain of the product candidates we may develop. Our likely collaborators for any other collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies, biotechnology companies and academic institutions. If we enter into any such arrangements with any third parties, we will likely have shared or limited control over the amount and timing of resources that our collaborators dedicate to the development or potential commercialization of any product candidates we may seek to develop with them. Our ability to generate revenue from these arrangements with commercial entities will depend on our collaborators abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.
Collaborations involving our product candidates we may develop, pose the following risks to us:
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collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations; |
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collaborators may not properly obtain, maintain, enforce or defend intellectual property or proprietary rights relating to our product candidates or may use our proprietary information in such a way as to expose us to potential litigation or other intellectual property related proceedings, including proceedings challenging the scope, ownership, validity and enforceability of our intellectual property; |
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collaborators may own or co-own intellectual property covering our product candidates that result from our collaboration with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property or such product candidates; |
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disputes may arise with respect to the ownership of intellectual property developed pursuant to collaborations; |
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we may need the cooperation of our collaborators to enforce or defend any intellectual property we contribute to or that arises out of our collaborations, which may not be provided to us; |
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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; |
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disputes may arise between the collaborators and us that result in the delay or termination of the research, development, or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management attention and resources; |
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collaborators may decide not to pursue development and commercialization of any product candidates we develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities; |
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing; |
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; |
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collaborators with marketing and distribution rights to one or more product candidates may not commit sufficient resources to the marketing and distribution of such product candidates; |
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we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control; |
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collaborators may undergo a change of control and the new owners may decide to take the collaboration in a direction which is not in our best interest; |
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collaborators may become party to a business combination transaction and the continued pursuit and emphasis on our development or commercialization program by the resulting entity under our existing collaboration could be delayed, diminished or terminated; |
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collaborators may become bankrupt, which may significantly delay our research or development programs, or may cause us to lose access to valuable technology, know-how or intellectual property of the collaborator relating to our products, product candidates; |
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key personnel at our collaborators may leave, which could negatively impact our ability to productively work with our collaborators; |
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collaborations may require us to incur short and long-term expenditures, issue securities that dilute our stockholders, or disrupt our management and business; |
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates or our ABC Platform; and |
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collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. |
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We may face significant competition in seeking appropriate collaborations. Recent business combinations among biotechnology and pharmaceutical companies have resulted in a reduced number of potential collaborators. In addition, the negotiation process is time-consuming and complex, and we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate or delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop product candidates or bring them to market and generate product revenue.
If we enter into collaborations to develop and potentially commercialize any product candidates, we may not be able to realize the benefit of such transactions if we or our collaborator elect not to exercise the rights granted under the agreement or if we or our collaborator are unable to successfully integrate a product candidate into existing operations and company culture. In addition, if our agreement with any of our collaborators terminates, our access to technology and intellectual property licensed to us by that collaborator may be restricted or terminate entirely, which may delay our continued development of our product candidates utilizing the collaborators technology or intellectual property or require us to stop development of those product candidates completely. We may also find it more difficult to find a suitable replacement collaborator or attract new collaborators, and our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. Any collaborator may also be subject to many of the risks relating to product development, regulatory approval, and commercialization described in this Risk Factors section, and any negative impact on our collaborators may adversely affect us.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for any product candidates we develop or for our ABC Platform, our competitors could develop and commercialize products or technology similar or identical to ours, and our ability to successfully commercialize any product candidates we may develop, and our technology may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our ABC Platform and any proprietary product candidates and other technologies we may develop. We seek to protect our proprietary position by in-licensing intellectual property and filing patent applications in the United States and abroad relating to our ABC Platform, product candidates and other technologies that are important to our business. Given that the development of our technology and product candidates is at an early stage, our intellectual property portfolio directed to certain aspects of our technology and product candidates is also at an early stage. We have filed or intend to file patent applications on core aspects of our technology and product candidates; however, there can be no assurance that any such patent applications will issue as granted patents. Furthermore, in some cases, we only have filed provisional patent applications on certain aspects of our technology and product candidates, and none of these provisional patent applications is eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of the filing date of the applicable provisional patent application. Any failure to file a non-provisional patent application within this timeline could cause us to lose the ability to obtain patent protection for the inventions disclosed in the associated provisional patent applications. Furthermore, in some cases, we may not be able to obtain issued claims covering compositions relating to our ABC Platform and product candidates, as well as other technologies that are important to our business, and instead may need to rely on filing patent applications with claims covering a method of use and/or method of manufacture for protection of such ABC Platform, product candidates and other technologies. There can be no assurance that any such patent applications will issue as granted patents, and even if they do issue, such patent claims may be insufficient to prevent third parties, such as our competitors, from utilizing our technology. Any failure to obtain or maintain patent protection with respect to our ABC Platform and product candidates could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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If any of our patent applications does not issue as a patent in any jurisdiction, we may not be able to compete effectively.
Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, and obtain, maintain and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned and licensed patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.
The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. In addition, our own fixed applications may become prior art against our current or future patent applications. Furthermore, 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, and in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in any of our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.
If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical technology and product candidates would be adversely affected.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protect our ABC Platform, product candidates or other technologies or that effectively prevent others from commercializing competitive technologies and product candidates.
Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents may be challenged, narrowed, circumvented, rendered unenforceable or invalidated by third parties. Consequently, we do not know whether our ABC Platform, product candidates or other technologies will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations and prospects.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or other similar proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent
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rights, allow third parties to commercialize our ABC Platform, product candidates or other technologies and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions and other challenges in a foreign patent office or administrative tribunal, that challenge our or our licensors priority of invention or other features of patentability with respect to our owned or in-licensed patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, 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 of our ABC Platform, product candidates and other technologies. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may not be able to protect our intellectual property and proprietary rights throughout the world.
Filing, prosecuting and defending patents relating to our ABC Platform, product candidates and other technologies in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as U.S. laws. 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, costly or impossible for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary 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, could put 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 and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government 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 government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. Payment within these late fee windows may be employed in order to simplify the payment of these fees generally. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, while not relevant for KSI-301, if we rely on a different product, its development could involve the use of government funds, which can require additional compliance aspects to make certain all rights are transferred to or remain with us.
Issued patents may be challenged or invalidated, and recent changes in U.S. patent law have diminished and may further diminish the value of patents in general. We rely on patents to protect our products, and any diminishment in the scope or value of our patents would adversely affect our business.
If we initiated legal proceedings against a third party to enforce a patent directed to our ABC Platform, product candidates or other technologies, the defendant could allege that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including obviousness, lack of novelty, lack of written description, or non-enablement. Grounds for an unenforceability challenge include an allegation that someone connected with prosecution of the patent withheld material information from the USPTO with an intent to deceive the USPTO, or made a misleading statement, during prosecution. The filing of a legal proceeding could also result in the third party challenging the patent at the USPTO, such as in post-grant and inter partes review.
Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For patent filings beginning in March 2013, the United States employs a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. Under the current patent laws, a third party that files a patent application in the USPTO before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either (1) file any patent application related to our ABC Platform, product candidates or other technologies or (2) invent any of the inventions claimed in our or our licensors patents or patent applications.
Changes to U.S. patent laws since 2011 also include allowing third party submissions of prior art to the USPTO during patent prosecution and additional procedures for attacking the validity of a patent through USPTO administered post-grant proceedings, including re-examination, post-grant review, inter partes review, interference proceedings and derivation proceedings. Some of these changes apply to patents issued prior to 2011. These and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings) could result in the revocation of, cancellation of or amendment to our patents in such a way that they no longer cover our ABC Platform, product candidates or other technologies. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standards applied in United States federal courts that apply to actions seeking to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding
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sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if challenged in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not otherwise have been invalidated if first challenged by the third party as a defendant in a district court action.
As compared to intellectual property-reliant companies generally, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. These rulings have created uncertainty with respect to the validity and enforceability of patents, even once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.
In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.
Any future changes to patent laws could increase the uncertainties and costs surrounding the prosecution of our owned or in-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our ABC Platform, product candidates or other technologies. Increased uncertainty with respect to, or loss of, patent protection would have a material adverse impact on our business, financial condition, results of operations and prospects.
If we do not obtain patent term extension and data exclusivity for any product candidates we may develop, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our owned or in-licensed U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent term extension of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar extensions as compensation for patent term lost during regulatory review processes are also available in certain foreign countries and territories, such as in Europe under a Supplementary Patent Certificate. Patent term extension in the United States and/or foreign countries and territories may not be available if, among other things, we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to the expiration of relevant patents, or otherwise fail to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension received is shorter than what we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets or other intellectual property as an inventor or co-inventor or owner or co-owner. For example, we may have inventorship disputes arise from conflicting obligations of
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employees, collaborators, consultants or others who are involved in developing our ABC Platform, product candidates or other technologies. Litigation may be necessary to defend against these and other claims challenging inventorship or our ownership of our owned or in-licensed patents, trade secrets or other intellectual property. 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, intellectual property that is important to our ABC Platform, product candidates and other technologies. 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. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for our ABC Platform, product candidates and other technologies, we also rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information and to maintain our competitive position. Trade secrets and know-how can be difficult to protect. Over time, we expect our trade secrets and know-how to be disseminated within the industry through independent development, the publication of journal articles describing the methodology and the movement of personnel from academic to industry scientific positions.
We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants, train our employees not to bring or use proprietary information or technology from former employers to us or in their work and remind former employees when they leave their employment of their confidentiality obligations to us. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. Despite our efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to contain such breaches or disclosures or obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed without the protection of a confidentiality agreement found unenforceable by relevant courts or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.
We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors and potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have improperly used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individuals current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to
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us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects. Where post-filing date patent assignments are not executed by an inventor, it is our practice to employ and record the assignment provision that can be found in the employees employment agreement. This is done when possible, and when the intellectual property is of interest to us.
Third-party claims of intellectual property infringement, misappropriation or other violation against us or our collaborators may prevent or delay the development and commercialization of our ABC Platform, product candidates and other technologies.
The field of discovering treatments for retinal diseases is highly competitive and dynamic. Due to the focused research and development that is taking place in this field by several companies, including us and our competitors, the intellectual property landscape is in flux, and it may remain uncertain in the future. As such, there may be significant intellectual property related litigation and proceedings relating to our owned, and other third party, intellectual property and proprietary rights in the future.
Our commercial success depends in part on our and our collaborators ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. As discussed above, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patents in the future.
Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist relating to ABC technology and in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our ABC Platform, product candidates and other technologies may give rise to claims of infringement of the patent rights of others. We cannot assure you that our ABC Platform, product candidates and other technologies that we have developed, are developing or may develop in the future will not infringe existing or future patents owned by third parties. We may not be aware of patents that have already been issued or that a third party, including a competitor in the fields in which we are developing our ABC Platform, product candidates and other technologies, might assert are infringed by our current or future ABC Platform, product candidates or other technologies. Such a dispute may concern claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover our ABC Platform, product candidates or other technologies. It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to our ABC Platform, product candidates or other technologies, could be found to be infringed by our ABC Platform, product candidates or other technologies. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that later result in issued patents that our ABC Platform, product candidates or other technologies may infringe.
Third parties may have patents or obtain patents in the future and claim that the manufacture, use or sale of our ABC Platform, product candidates or other technologies infringes these patents. If a third party alleges that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by our ABC Platform, product candidates or other technologies, even if we believe such claims are without merit. In that event, the successful plaintiff may be able to block our ability to commercialize the applicable product candidate or technology unless we obtain a license under the applicable patents, or such patents expire or are finally determined to be invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if we are able to obtain a license, the license would
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likely obligate us to pay license fees, royalties or both. Any license granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our ABC Platform, product candidates or other technologies, or our commercialization efforts may be significantly delayed, which could in turn significantly harm our business.
We are aware of a number of patents and applications that are directed to one or more aspects of KSI-301. Our intent is to maintain our development efforts under 35 U.S.C. Section 271(e)(1) (which provides a safe harbor from patent infringement claims related to certain drug development activities) through to at least the launch of any KSI-301 product. As such, we do not intend to launch KSI-301 when any valid patent is still in force. We are aware of at least one pending application with claims that are directed to some aspect of KSI-301, and that could, if issued, result in a patent term beyond our intended launch date of KSI-301. If this were to occur, we may challenge the validity of the claims, obtain a license, modify KSI-301, or delay launch.
If we choose to further the pipeline and develop a different product, such a product would be delayed until the expiration of any valid patent that is still in force on such product. Alternatively, our options for addressing any such patents relating to these non-KSI-301 products would include the following: challenge the validity of the claims, obtain a license, or modify the non-KSI-301 product.
Defending against infringement claims, regardless of their merit, would involve substantial litigation expense, would be a substantial diversion of management and other employee resources from our business and may adversely impact our reputation. We may be subject to an injunction that prevents or delays us from commercializing our ABC Platform technology, product candidates or other technologies during ongoing litigation even if we ultimately prevail in the litigation proceedings or the litigation is settled in our favor. We may be subject to an injunction that prevents or delays us from commercializing our ABC Platform, product candidates or other technologies during ongoing litigation even if we ultimately prevail in the litigation proceedings or the litigation is settled in our favor. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing our infringing ABC Platform, product candidates or other technologies. In addition, we may have to pay substantial damages (including treble damages and attorneys fees for willful infringement) obtain one or more licenses from third parties, pay royalties and/or redesign our infringing product candidates or technologies, which may be impossible or require substantial time and monetary expenditure. If we were unable to further develop and commercialize our ABC Platform, product candidates or other technologies, it would harm our business significantly.
Engaging in litigation to defend against third parties alleging that we have infringed, misappropriated or otherwise violated their patents or other intellectual property rights is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings against us could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensing partners, or we may be required to defend against claims of infringement. If we assert our intellectual property against others, it could increase the likelihood that our patents or the patents of our licensing partners become involved in inventorship, priority or validity disputes. As discussed above, countering or defending against such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, the other partys use of our patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1), or may refuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents do not cover the technology in question. An adverse result
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in any litigation proceeding could put one or more of our owned or in-licensed patents at risk of being invalidated, rendered unenforceable or interpreted narrowly. 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.
Even if we prevail in asserting our intellectual property, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately or to assert all claims we believe to be viable. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We rely on trademarks, service marks, tradenames and brand names. We cannot assure you that our trademark applications will be approved. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, any registered or unregistered trademarks or trade names that we currently have or may in the future acquire may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Further, we do not own any registered trademarks for the marks KODIAK or KODIAK SCIENCES in the United States. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We engage a third party watching service to monitor use by third parties of names that are identical or similar to our name. We have identified at least two companies that are using names that we continue to monitor. If we deem it appropriate, we may decide to take action with respect to those companies. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
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others may be able to make products that are similar to our product candidates or utilize similar technology but that are not covered by the claims of the patents that we may license or own; |
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we, or our current or future licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or own now or in the future; |
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we, or our current or future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; |
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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights; |
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it is possible that our current or future pending owned or licensed patent applications will not lead to issued patents; |
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issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; |
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our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
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we may not develop additional proprietary technologies that are patentable; |
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the patents of others may harm our business; and |
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we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property. |
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to Our Operations
We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract, motivate and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, particularly our Chief Executive Officer, Dr. Victor Perlroth, and our scientific and medical personnel. The loss of the services provided by any of our executive officers, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in the development of our product candidates and harm our business.
We conduct our operations at our facility in Palo Alto, California, in a region that is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel is intense and the turnover rate can be high, which may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. We expect that we may need to recruit talent from outside of our region and doing so may be costly and difficult.
To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided restricted stock and stock option grants, including early exercise stock options exercisable for restricted stock that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain key man insurance policies on the lives of all of these individuals or the lives of any of our other employees. If we are unable to attract, incentivize and retain quality personnel on acceptable terms, or at all, it may cause our business and operating results to suffer.
We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
As of September 1, 2018, we had 28 employees, all of whom were full-time. As our development plans and strategies develop, and as we transition into operating as a public company, we must add a significant number of
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additional managerial, operational, financial and other personnel. Future growth will impose significant added responsibilities on members of management, including:
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identifying, recruiting, integrating, retaining and motivating additional employees; |
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managing our internal development efforts effectively, including the clinical and FDA review process for our current and future product candidates, while complying with our contractual obligations to contractors and other third parties; |
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expanding our operational, financial and management controls, reporting systems and procedures; and |
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managing increasing operational and managerial complexity. |
Our future financial performance and our ability to continue to develop and, if approved, commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth. Our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to manage these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all.
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop our product candidates and, accordingly, may not achieve our research, development, and commercialization goals.
A failure to maintain an effective system of internal control over financial reporting could result in material misstatements of our financial statements in future periods and may impair our ability to comply with the accounting and reporting requirements applicable to public companies.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
In the period ended December 31, 2016, we identified a material weakness in our internal control over financial reporting which related to misclassifications of (1) the repurchase and retirement of preferred stock within the treasury stock, additional paid-in capital and stockholders deficit accounts and (2) certain legal costs within the research and development and general and administrative expense accounts. Although the control deficiency was remediated in 2017, there can be no assurance that we will maintain internal control over financial reporting sufficient to enable us to identify or avoid material weaknesses in the future.
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If we engage in acquisitions, in-licensing 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 engage in various acquisitions and strategic partnerships in the future, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any acquisition or strategic partnership may entail numerous risks, including:
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increased operating expenses and cash requirements; |
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the assumption of indebtedness or contingent liabilities; |
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the issuance of our equity securities which would result in dilution to our stockholders; |
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assimilation of operations, intellectual property, products and product candidates of an acquired company, including difficulties associated with integrating new personnel; |
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the diversion of our managements attention from our existing product candidates and initiatives in pursuing such an acquisition or strategic partnership; |
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retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships; |
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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 regulatory approvals; and |
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our inability to generate revenue from acquired intellectual property, technology and/or products sufficient to meet our objectives or even to offset the associated transaction and maintenance costs. |
In addition, if we undertake such a transaction, we may incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.
Our internal computer systems, or those used by our third-party research institution collaborators, CROs or other contractors or consultants, may fail or suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants may be vulnerable to damage from computer viruses and unauthorized access. Although to our knowledge we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on our third-party research institution collaborators for research and development of our product candidates and other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed, and the further development and commercialization of our product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, CMOs, suppliers, and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are partly uninsured. In addition, we rely on our third-party research institution collaborators for conducting research and development of our product candidates, and they may be
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affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
All of our operations including our corporate headquarters are located in a single facility in Palo Alto, California. Damage or extended periods of interruption to our corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of some or all of our product candidates. Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such delays and interruption.
We recently implemented a new enterprise resource planning, or ERP, system as well as other systems as part of our ongoing technology and process improvements. Our ERP system is critical to our ability to accurately maintain books and records and prepare our financial statements. If we encounter unforeseen problems with our ERP system or other systems and infrastructure, our business, operations, and financial results could be adversely affected.
Our business is subject to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated with conducting business internationally. Some of our suppliers and collaborative relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
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economic weakness, including inflation or political instability in particular non-U.S. economies and markets; |
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differing and changing regulatory requirements in non-U.S. countries; |
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challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; |
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difficulties in compliance with non-U.S. laws and regulations; |
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changes in non-U.S. regulations and customs, tariffs and trade barriers; |
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changes in non-U.S. currency exchange rates and currency controls; |
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changes in a specific countrys or regions political or economic environment; |
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trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments; |
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negative consequences from changes in tax laws; |
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
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workforce uncertainty in countries where labor unrest is more common than in the United States; |
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difficulties associated with staffing and managing international operations, including differing labor relations; |
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potential liability under the FCPA or comparable foreign laws; and |
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business interruptions resulting from geo-political actions, including war and terrorism or natural disasters. |
These and other risks associated with our planned international operations may materially adversely affect our ability to attain profitable operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2017, we had federal net operating loss carryforwards, or NOLs, of $18.1 million, which will begin to expire in 2035. Under Sections 382 and 383 of the United States Internal Revenue Code of
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1986, as amended, or the Code, if a corporation undergoes an ownership change (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period), the corporations ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. As a result of our most recent private placements and other transactions that have occurred since our incorporation, we may have experienced, and, in connection with this offering, may experience, such an ownership change. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which are outside our control. As a result, our ability to use our pre-change net operating loss carryforwards and other pre-change tax attributes to offset post-change taxable income or taxes may be subject to limitation. We will be unable to use our NOLs if we do not attain profitability sufficient to offset our available NOLs prior to their expiration.
Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of our domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, on December 22, 2017, the Tax Cuts and Jobs Act, or Tax Act, was enacted into law with many significant changes to the U.S. tax laws, the consequences of which have not yet been determined. Under the Tax Act, the corporate tax rate will be reduced to 21% from 35% for tax years beginning after December 31, 2017. This will affect the gross amount of our deferred tax assets with a corresponding offset to valuation allowance. The Tax Act also limits the utilization of NOLs arising in tax years beginning after December 31, 2017 to 80% of taxable income per year. However, existing NOLs that arose in years prior to December 31, 2017 are not affected by these provisions. We are currently evaluating the Tax Act and its potential effects on our financial statements. The foregoing items could have a material adverse effect on our business, cash flow, financial condition or results of operations.
Risks Related to This Offering and Ownership of Our Common Stock
We do not know whether an active market will develop for our common stock or what the market price of our common stock will be, and, as a result, it may be difficult for you to sell your shares of our common stock.
Before this offering, there was no public trading market for our common stock. If an active market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations and progression of our product pipeline may not meet the expectations of public market analysts and investors, and, as a result of these and other factors, the price of our common stock may fall.
The market price of our common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering.
The initial public offering price for our common stock will be determined through negotiations with the underwriters. This initial public offering price may differ from the market price of our common stock after the offering. As a result, you may not be able to sell your common stock at or above the initial public offering price. Some of the factors that may cause the market price of our common stock to fluctuate include:
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the success of existing or new competitive products or technologies; |
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the timing and results of clinical trials for our current product candidates and any future product candidates that we may develop; |
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commencement or termination of collaborations for our product candidates; |
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failure or discontinuation of any of our product candidates; |
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failure to develop our ABC Platform; |
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results of preclinical studies, clinical trials or regulatory approvals of product candidates of our competitors, or announcements about new research programs or product candidates of our competitors; |
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regulatory or legal developments in the United States and other countries; |
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developments or disputes concerning patent applications, issued patents or other proprietary rights; |
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the recruitment or departure of key personnel; |
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the commencement of litigation; |
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the level of expenses related to any of our research programs, product candidates that we may develop; |
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the results of our efforts to develop additional product candidates or products; |
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; |
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announcement or expectation of additional financing efforts; |
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sales of our common stock by us, our insiders, or other stockholders; |
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expiration of market standoff or lock-up agreements; |
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variations in our financial results or those of companies that are perceived to be similar to us; |
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changes in estimates or recommendations by securities analysts, if any, that cover our stock; |
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changes in the structure of healthcare payment systems; |
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market conditions in the pharmaceutical and biotechnology sectors; |
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general economic, industry, and market conditions; and |
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the other factors described in this Risk Factors section. |
In recent years, the stock market in general, and the market for pharmaceutical and biotechnology companies in particular, has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. Following periods of such volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock could decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
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A significant portion of our total outstanding shares is restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, upon the expiration of the market standoff and lock-up agreements, the early release of these agreements or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. After this offering and after giving effect to the conversion of all outstanding shares of our redeemable convertible preferred stock, convertible notes (assuming conversion of $12.5 million principal amount and accrued interest of our 2017 convertible notes as of June 30, 2018 at a conversion price of $5.00 per share and the conversion of $33.8 million principal amount and accrued interest of our 2018 convertible notes as of June 30, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering) and warrants into an aggregate of 18,401,621 shares of our common stock, we will have 35,365,855 shares of common stock outstanding based on 7,964,234 shares of our common stock outstanding as of June 30, 2018. Of these shares, the 9,000,000 shares we are selling in this offering may be resold in the public market immediately. The remaining 26,365,855 shares, or 74.6% of our outstanding shares after this offering, are currently prohibited or otherwise restricted under securities laws, market standoff agreements entered into by our stockholders with us or lock-up agreements entered into by our stockholders with the underwriters; however, subject to applicable securities law restrictions and excluding shares of restricted stock that will remain unvested, these shares will be able to be sold in the public market beginning 180 days after the date of this prospectus. The representatives may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. Shares issued upon the exercise of stock options outstanding under our equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market standoff and lock-up agreements, and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act. See the section of this prospectus titled Shares Eligible for Future Sale for additional information.
Moreover, after this offering, holders of an aggregate of 18,401,621 shares of our common stock will have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also plan to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described in the section of this prospectus titled Underwriting . If any of these additional shares 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.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We will seek additional capital through one or a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. We, and indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. To the extent that we raise additional capital through the sale of equity securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. If we raise additional funds through strategic partnerships
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and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.
Insiders will continue to have substantial influence over us after this offering, which could limit your ability to affect the outcome of key transactions, including a change of control.
After this offering, our directors, executive officers, holders of more than 5% of our outstanding stock and their respective affiliates will beneficially own shares representing approximately 49.6% of our outstanding common stock or 59.3% if investment entities affiliated with certain of our principal stockholders and certain of our other existing securityholders purchase a number of shares of common stock equal to that for which they have expressed an interest in purchasing (assuming an initial price to public of $14.00, the midpoint of the range on the cover page of this prospectus). As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock.
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of SOX Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the information we provide stockholders will be different than the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance, and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company, and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We are currently evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying
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interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to SOX Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by SOX Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
If we are unable to maintain effective internal controls, our business, financial position and results of operations could be adversely affected.
As a public company, we will be subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, including the requirements of SOX Section 404, which require annual management assessments of the effectiveness of our internal control over financial reporting.
The rules governing the standards that must be met for management to determine that our internal control over financial reporting is effective are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002. These reporting and other obligations place significant demands on our management and administrative and operational resources, including accounting resources.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Any failure to maintain effective internal controls could have an adverse effect on our business, financial position and results of operations.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
We cannot specify with certainty the particular uses of the net proceeds we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus titled Use of Proceeds. Our management may spend a portion or all of the net proceeds from this offering in ways that our stockholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business, financial condition, results of operations and prospects. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
Delaware law and provisions in our certificate of incorporation and bylaws that will become effective immediately prior to the closing of this offering might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Provisions in our certificate of incorporation and bylaws that will become effective immediately prior to the closing of this offering may discourage, delay, or prevent a merger, acquisition, or other change in control that
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stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our charter documents will:
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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; |
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eliminate cumulative voting in the election of directors; |
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authorize our board of directors to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval; |
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provide our board of directors with the exclusive right to elect a director to fill a vacancy or newly created directorship; |
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permit stockholders to only take actions at a duly called annual or special meeting and not by written consent; |
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prohibit stockholders from calling a special meeting of stockholders; |
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require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings; |
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authorize our board of directors, by a majority vote, to amend the bylaws; and |
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require the affirmative vote of at least 66 2/3% or more of the outstanding shares of common stock to amend many of the provisions described above. |
In addition, Section 203 of the General Corporation Law of the State of Delaware, or DGCL, prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
Any provision of our certificate of incorporation, bylaws, or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for:
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any derivative action or proceeding brought on our behalf; |
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any action asserting a claim of breach of fiduciary duty; |
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any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws; and |
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any action asserting a claim against us that is governed by the internal-affairs doctrine. |
Our amended and restated bylaws further provide that the U.S. federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
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These exclusive-forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our managements beliefs and assumptions and on information currently available to our management. Some of the statements under Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business and elsewhere in this prospectus contain forward-looking statements. In some cases, you can identify forward- looking statements by the following words: anticipate, believe, continue, could, estimate, expect, intend, may, ongoing, plan, potential, predict, project, should, will, would or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this prospectus include, but are not limited to, statements about:
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the success, cost and timing of our development activities, preclinical studies and clinical trials; |
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the translation of our preclinical results and data and early clinical trial results into future clinical trials in humans; |
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the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval, including whether our planned Phase 2 trial in wet AMD will be considered a pivotal trial by the FDA; |
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the timing or likelihood of regulatory filings and approvals; |
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our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate; |
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our ability to obtain funding for our operations, including funding necessary to develop and commercialize our product candidates; |
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the rate and degree of market acceptance of our product candidates; |
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the success of competing products or platform technologies that are or may become available; |
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our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval; |
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future agreements with third parties in connection with the commercialization of our product candidates; |
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the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets; |
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existing regulations and regulatory developments in the United States and foreign countries; |
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the expected potential benefits of strategic collaboration agreements and our ability to attract collaborators with development, regulatory and commercialization expertise; |
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the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology; |
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potential claims relating to our intellectual property and third-party intellectual property; |
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our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately; |
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the pricing and reimbursement of our product candidates, if approved; |
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our ability to attract and retain key managerial, scientific and medical personnel; |
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the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
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our financial performance; |
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our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act; and |
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our anticipated use of the proceeds from this offering. |
You should refer to the Risk Factors section of this prospectus for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. In addition, statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
This prospectus contains market data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise.
This prospectus contains statistical data, estimates, and forecasts that are based on independent industry publications or reports or other publicly available information, as well as other information based on our internal sources. This information involves a number of assumptions and limitations, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed in the section of this prospectus titled Risk Factors and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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We estimate that the net proceeds from this offering will be approximately $113.6 million, or approximately $131.2 million if the underwriters exercise their option to purchase additional shares in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus. Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) the net proceeds to us from this offering by $8.4 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by $13.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the assumed initial public offering price or the number of shares by these amounts would have a material effect on our uses of the proceeds from this offering, although it may accelerate the time when we need to seek additional capital.
We currently expect to use the net proceeds from this offering together with our existing cash and cash equivalents as follows:
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approximately $40 million to advance KSI-301 through completion of enrollment of the global Phase 2 clinical trial in the U.S., EU and rest of the world in patients with wet AMD as well as through completion of a Phase 1b clinical trial; |
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approximately $25 million to advance KSI-301 into Phase 2 clinical trials in China for wet AMD and DME/DR and through an administrative interim analysis in each of the studies (anticipated to occur when approximately 200 patients have completed approximately six months of treatment duration, per study); |
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approximately $15 million to advance KSI-301 into the global Phase 2 clinical trial in the U.S., EU and rest of the world in patients with DME/DR; |
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approximately $15 million towards research and development of our pipeline including KSI-501, and to initiate additional clinical studies in ophthalmology; and |
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the remainder for working capital and other general corporate purposes. |
Based on our current business plan, we believe that our existing cash, cash equivalents, and the anticipated net proceeds from this offering will provide sufficient funds to sustain our operations through at least the next 12 months. Our estimate as to how long we expect our existing cash, cash equivalents and the anticipated net proceeds from this offering to be available to fund our operations is based on assumptions that may prove inaccurate, and we could use our available capital resources sooner than we currently expect. We may elect to delay the initiation of the global Phase 2 clinical trial in the U.S., EU and rest of world in patients with DME/DR, as well as other development efforts, to enable sufficient funding for completion of the global Phase 2 clinical trial in the U.S., EU and rest of world in patients with wet AMD. If we continue our plan to complete each of the clinical trials of KSI-301 set forth above, then we will need to raise additional funds to complete the trials, including the global Phase 2 clinical trial in the U.S., EU and rest of the world in patients with wet AMD. We will also require additional funds to advance our pipeline research and development efforts, including KSI-501, and to initiate additional clinical studies in ophthalmology, the amounts of which will depend on the ultimate clinical development paths we pursue. We may satisfy our future cash needs through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches.
The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we
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will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from preclinical studies or clinical studies we may commence in the future, as well as any collaborations that we may enter into with third parties, or any business development opportunities we may engage in for our programs and any unforeseen cash needs.
We may also use a portion of our net proceeds to acquire or invest in complementary products, technologies, or businesses; however, we currently have no agreements or commitments to complete any such transactions.
Since we expect to use the net proceeds from this offering for working capital and other general corporate purposes, our management will have broad discretion over the use of the net proceeds from this offering. As of the date of this prospectus, we intend to invest the net proceeds in short-term interest-bearing investment-grade securities, certificates of deposit or government securities.
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We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends will be made at the discretion of our board of directors subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our capital stock is limited by the terms of our existing debt instruments and may be limited by any future debt instruments or preferred securities.
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The following table summarizes our cash and cash equivalents and capitalization as of June 30, 2018:
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on an actual basis; |
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on a pro forma basis to reflect (1) the automatic conversion of the redeemable convertible preferred stock into 12,385,154 shares of common stock, (2) the assumed conversion of the outstanding 2017 convertible notes into an aggregate of 2,497,722 shares of our common stock immediately prior to the closing of this offering (assuming conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share), (3) the automatic conversion of the outstanding 2018 convertible notes into an aggregate of 3,018,745 shares of our common stock immediately prior to the closing of this offering (assuming conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering), (4) the resulting settlement of the derivative instrument upon the conversion of the 2018 convertible notes and the estimated $7.1 million impact to accumulated deficit (assuming an initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus) as a result of the fair value adjustment to the derivative and loss on extinguishment of the 2018 convertible notes, (5) the automatic conversion of warrants to purchase 500,000 shares of our Series B redeemable convertible preferred stock as of June 30, 2018 into warrants to purchase an equivalent number of shares of our common stock and assuming the exercise of the common stock warrants immediately following the closing of this offering, and (6) the filing of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering; and |
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on a pro forma as adjusted basis to reflect (1) the pro forma adjustments set forth above and (2) the sale and issuance by us of 9,000,000 shares of common stock in this offering at the assumed initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
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You should read the information in this table together with our consolidated financial statements and related notes, as well as the sections captioned Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere in this prospectus.
As of June 30, 2018 | ||||||||||||
Actual |
Pro
Forma |
Pro Forma
As Adjusted (1) |
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(in thousands, except share and per share data) | ||||||||||||
Cash and cash equivalents |
$ | 17,641 | $ | 17,641 | $ | 132,080 | ||||||
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Convertible notes |
$ | 39,495 | $ | | $ | | ||||||
Redeemable convertible preferred stock warrant liability |
4,005 | | | |||||||||
Derivative instrument |
7,367 | | | |||||||||
Redeemable convertible preferred stock, $0.0001 par value per share; 18,753,595 shares authorized, 12,385,154 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted |
50,017 | | | |||||||||
Stockholders (deficit) equity: |
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Preferred stock, $0.0001 par value per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted |
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Common stock, $0.0001 par value per share; 28,500,000 shares authorized, 7,964,234 shares issued and outstanding, actual; 490,000,000 shares authorized, 26,365,855 shares issued and outstanding, pro forma; 490,000,000 shares authorized, 35,365,855 shares issued and outstanding, pro forma as adjusted |
1 | 3 | 4 | |||||||||
Additional paid-in capital |
1,424 | 109,404 | 222,983 | |||||||||
Accumulated deficit |
(85,652 | ) | (92,750 | ) | (92,750 | ) | ||||||
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Total stockholders (deficit) equity |
(84,227 | ) | 16,657 | 130,237 | ||||||||
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Total capitalization |
$ | 16,657 | $ | 16,657 | $ | 130,237 | ||||||
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(1) |
Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share, the midpoint of the range reflected on the cover of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders (deficit) equity and total capitalization by $8.4 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, additional paid-in-capital, total stockholders (deficit) equity and total capitalization by $13.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma and pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. |
The number of shares of our common stock outstanding immediately after this offering is based on 7,964,234 shares of common stock outstanding as of June 30, 2018, and excludes:
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3,383,478 shares of common stock issuable upon the exercise of outstanding options as of June 30, 2018 with a weighted-average exercise price of $3.82 per share; |
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shares issuable upon conversion of accrued interest on our outstanding 2017 convertible notes and our outstanding 2018 convertible notes since June 30, 2018; |
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398,693 shares of common stock reserved for future issuance under our 2015 Share Incentive Plan as of June 30, 2018; |
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4,300,000 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part (we anticipate granting options to purchase an aggregate of 1,278,954 shares of common stock on the date of effectiveness of the registration statement of which this prospectus forms a part and, on the effective date of the filing of a registration statement on Form S-8, an award of restricted stock units having a value of approximately $600,000, with the number of restricted stock units determined based on the initial public offering price of our common stock in this offering); and |
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460,000 shares of common stock reserved for future issuance under our 2018 Employee Stock Purchase Plan, which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part. |
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If you invest in our common stock you will experience immediate and substantial dilution in the pro forma net tangible book value of your shares of common stock. Dilution in pro forma net tangible book value represents the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock.
Historical net tangible book value (deficit) represents our total tangible assets (total assets less deferred offering costs) less total liabilities and our redeemable convertible preferred stock. As of June 30, 2018, our historical net tangible book deficit was $86.4 million and our historical net tangible book deficit per share was $10.85. After giving effect to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into 12,385,154 shares of common stock in connection with this offering, the assumed conversion of the outstanding 2017 convertible notes into an aggregate of 2,497,722 shares of our common stock immediately prior to the closing of this offering (assuming the conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share), the automatic conversion of the outstanding 2018 convertible notes into an aggregate of 3,018,745 shares of our common stock (assuming conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering), the resulting settlement of the derivative instrument upon the conversion of the 2018 convertible notes and the estimated $7.1 million impact to accumulated deficit (assuming an initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus) as a result of the fair value adjustment to the derivative and loss on extinguishment of the 2018 convertible notes, and the automatic conversion of warrants to purchase 500,000 shares of our Series B redeemable convertible preferred stock as of June 30, 2018 into warrants to purchase an equivalent number of shares of our common stock and assuming the exercise of the common stock warrants, immediately following the closing of this offering, our pro forma net tangible book value as of June 30, 2018 would have been $14.5 million, or $0.55 per share.
After giving effect to the sale and issuance of 9,000,000 shares of common stock in this offering at the assumed initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2018 would have been $130.2 million, or $3.68 per share. This represents an immediate increase in pro forma net tangible book value of $3.13 per share to existing stockholders and an immediate dilution of the pro forma net tangible book value of $10.32 per share to new investors purchasing common stock in this offering.
The following table illustrates this dilution on a per share basis to new investors:
Assumed initial public offering price per share |
$ | 14.00 | ||||||
Historical net tangible book value (deficit) per share as of June 30, 2018 |
$ | (10.85 | ) | |||||
Changes to historical net tangible book deficit per share attributable to pro forma adjustments identified above |
11.40 | |||||||
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Pro forma net tangible book value per share before this offering |
0.55 | |||||||
Increase in pro forma net tangible book value per share attributable to investors participating in the offering |
3.13 | |||||||
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Pro forma as adjusted net tangible book value per share, as adjusted to give effect to this offering |
3.68 | |||||||
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Dilution in pro forma as adjusted net tangible book value per share to investors participating in this offering |
$ | 10.32 | ||||||
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Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) our pro forma as adjusted net tangible book value by $8.4 million, or $0.26 per share, and increase (decrease) the dilution per share to investors participating in this offering by $0.74 per share, assuming
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that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, after giving effect to the change in the number of shares issuable upon conversion of the 2018 convertible notes as a result of the change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 in the number of shares offered by us would increase our pro forma as adjusted net tangible book value by $13.0 million, or $0.26 per share, and the dilution per share to investors participating in this offering would be $10.06 per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a decrease of 1,000,000 shares in the number of shares offered by us would decrease our pro forma as adjusted net tangible book value by $13.0 million, or $0.27 per share, and the dilution per share to investors participating in this offering would be $10.59 per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.
If the underwriters exercise their option in full to purchase 1,350,000 additional shares of common stock in this offering, the pro forma as adjusted net tangible book value per share after the offering would be $4.03 per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $3.48 per share, and the pro forma as adjusted dilution to new investors purchasing common stock in this offering would be $9.97 per share.
The following table summarizes, on a pro forma basis as adjusted basis as described above as of June 30, 2018, the differences between the number of shares of common stock purchased from us, the total consideration and the weighted-average price per share paid by existing stockholders and by investors participating in this offering at the assumed initial public offering price of $14.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares Purchased | Total Consideration |
Average Price
Per Share |
||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders before this offering |
26,365,855 | 74.6 | % | $ | 96,755,749 | 43.4 | % | $ | 3.67 | |||||||||||
Investors participating in this offering |
9,000,000 | 25.4 | % | $ | 126,000,000 | 56.6 | % | $ | 14.00 | |||||||||||
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|
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|
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|
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Total |
35,365,855 | 100.0 | % | $ | 222,755,749 | 100.0 | % | $ | 6.30 | |||||||||||
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|
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Each $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) total consideration paid by new investors by $9.0 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, after giving effect to the change in the number of shares issuable upon conversion of the 2018 convertible notes and associated accrued interest as a result of the change in the initial public offering price. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) total consideration paid by new investors by $14.0 million, assuming that the assumed initial public offering price remains the same.
The number of shares of our common stock outstanding immediately after this offering is based on 7,964,234 shares of common stock outstanding as of June 30, 2018, and excludes:
|
3,383,478 shares of common stock issuable upon the exercise of outstanding options, as of June 30, 2018, with a weighted-average exercise price of $3.82 per share; |
|
shares issuable upon conversion of accrued interest on our outstanding 2017 convertible notes and our outstanding 2018 convertible notes since June 30, 2018; |
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398,693 shares of common stock reserved for future issuance under our 2015 Share Incentive Plan as of June 30, 2018; |
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4,300,000 shares of common stock reserved for future issuance under our 2018 Equity Incentive Plan which will become effective on the business day immediately prior to the date of effectiveness of the |
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registration statement of which this prospectus forms a part (we anticipate granting options to purchase an aggregate of 1,278,954 shares of common stock on the date of effectiveness of the registration statement of which this prospectus forms a part and, on the effective date of the filing of a registration statement on Form S-8, an award of restricted stock units having a value of approximately $600,000, with the number of restricted stock units determined based on the initial public offering price of our common stock in this offering); and |
|
460,000 shares of common stock reserved for future issuance under our 2018 Employee Stock Purchase Plan which will become effective on the business day immediately prior to the date of effectiveness of the registration statement of which this prospectus forms a part. |
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SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2016 and 2017 are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2017 and 2018 and the consolidated balance sheet data as of June 30, 2018 are derived from our unaudited consolidated financial statements and related notes included elsewhere in this prospectus. In the opinion of management, the unaudited data reflects all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the information in Managements Discussion and Analysis of Financial Condition and Results of Operations. Our historical results are not necessarily indicative of our future results, and the results of operations for the years ended December 31, 2016 and 2017 and any interim period are not necessarily indicative of the results to be expected for any other period. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes included elsewhere in this prospectus.
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands, except share and per share data) |
||||||||||||||||
Consolidated Statement of Operations Data: |
||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
$ | 14,053 | $ | 22,022 | $ | 10,098 | $ | 7,233 | ||||||||
General and administrative |
3,098 | 3,499 | 1,687 | 3,404 | ||||||||||||
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|
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Total operating expenses |
17,151 | 25,521 | 11,785 | 10,637 | ||||||||||||
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|
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Loss from operations |
(17,151 | ) | (25,521 | ) | (11,785 | ) | (10,637 | ) | ||||||||
Interest expense |
(6 | ) | (1,185 | ) | (12 | ) | (3,347 | ) | ||||||||
Other income (expense), net |
25 | (1,230 | ) | 14 | (2,345 | ) | ||||||||||
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Net loss and comprehensive loss |
$ | (17,132 | ) | $ | (27,936 | ) | $ | (11,783 | ) | $ | (16,329 | ) | ||||
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Net loss per share attributable to common stockholders, basic and diluted |
$ | (2.38 | ) | $ | (3.72 | ) | $ | (1.58 | ) | $ | (2.11 | ) | ||||
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|
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Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted |
7,211,360 | 7,515,336 | 7,444,612 | 7,720,967 | ||||||||||||
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Pro forma net loss per share attributable to common stockholders, basic and diluted (1) |
$ | (1.21 | ) | $ | (0.41 | ) | ||||||||||
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|
|
|||||||||||||
Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted (1) |
21,074,940 | 25,569,847 | ||||||||||||||
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|
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As of December 31, |
As of
June 30, 2018 |
|||||||||||
2016 | 2017 | |||||||||||
(in thousands) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash and cash equivalents |
$ | 9,622 | $ | 1,395 | $ | 17,641 | ||||||
Working capital (2) |
7,682 | (7,563 | ) | 13,617 | ||||||||
Total assets |
12,114 | 3,244 | 21,703 | |||||||||
Convertible notes |
| 9,921 | 39,495 | |||||||||
Redeemable convertible preferred stock warrant liability |
| 2,300 | 4,005 | |||||||||
Derivative instrument |
| | 7,367 | |||||||||
Total liabilities |
3,180 | 21,965 | 55,913 | |||||||||
Redeemable convertible preferred stock |
50,017 | 50,017 | 50,017 | |||||||||
Accumulated deficit |
(41,387 | ) | (69,323 | ) | (85,652 | ) | ||||||
Total stockholders deficit |
(41,083 | ) | (68,738 | ) | (84,227 | ) |
(1) |
For the calculation of our pro forma net loss per share and pro forma weighted-average shares outstanding, see Note 14 to our consolidated financial statements included elsewhere in this prospectus. |
(2) |
We define working capital as current assets less current liabilities. See our consolidated financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the section of this prospectus titled Selected Consolidated Financial Data and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions, forecasts and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this prospectus titled Risk Factors and elsewhere in this prospectus. You should carefully read the Risk Factors to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section of this prospectus titled Special Note Regarding Forward-Looking Statements.
Overview
We are a clinical stage biopharmaceutical company specializing in novel therapeutics to treat chronic, high-prevalence retinal diseases. Our most advanced product candidate is KSI-301, a biologic therapy built with our antibody biopolymer conjugate platform, or ABC, platform, which is designed to maintain potent and effective drug levels in ocular tissues. We believe that KSI-301, if approved, has the potential to become an important anti-vascular endothelial growth factor, or anti-VEGF, therapy in wet age-related macular degeneration, or wet AMD, and diabetic retinopathy, or DR. KSI-301 and our ABC Platform were developed at Kodiak, and we own worldwide rights to those assets, including composition of matter patent protection with respect to KSI-301. We have applied our ABC Platform to develop additional product candidates beyond KSI-301, including KSI-501, our bispecific anti-IL-6/VEGF bioconjugate. We intend to progress these and other product candidates to address high-prevalence ophthalmic diseases.
We initiated our first-in-human, Phase 1 clinical study of KSI-301 in the United States in nine patients in July 2018. We have successfully dosed all patients at the pre-planned dose levels and reached the primary safety and tolerability endpoint of the study. Having successfully met the primary endpoint of safety and tolerability in the Phase 1 study, with the additional observations around bioactivity, we plan to further evaluate the highest dose tested of KSI-301, 5 mg, in a series of global studies in wet AMD and DR, including diabetic macular edema, or DME. We expect to be dosing patients in a global Phase 2 study of KSI-301 in the United States in early 2019, and clinical trial applications to ex-U.S. regulatory authorities for this study are in progress.
We plan to continue to use third-party contract research organizations, or CROs, to carry out our preclinical and clinical development. We rely on third-party contract manufacturing organizations, or CMOs, to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates. We currently do not need commercial manufacturing capacity.
We do not have any products approved for sale and have not generated any product revenue since inception. From inception through June 30, 2018, we funded our operations primarily with an aggregate of $94.4 million in gross cash proceeds from the sale and issuance of redeemable convertible preferred stock, convertible notes and warrants to purchase Series B redeemable convertible preferred stock.
Since inception in June 2009, we have devoted substantially all of our resources to discovering and developing product candidates and manufacturing processes, building our ABC Platform and assembling our core capabilities in drug development for ophthalmic disease.
We have incurred significant operating losses to date and expect that our operating losses will increase significantly as we advance our product candidates, particularly KSI-301, through preclinical and clinical development, seek regulatory approval, and prepare for, and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, upon the completion of this offering we expect to incur additional costs associated with operating as a public company.
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Our net losses were $17.1 million and $27.9 million for the years ended December 31, 2016 and 2017 and $11.8 million and $16.3 million for the six months ended June 30, 2017 and 2018, respectively. As of June 30, 2018, we had an accumulated deficit of $85.7 million.
Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of KSI-301 for wet AMD or DR or delay our efforts to advance and expand our product pipeline.
As of June 30, 2018, we had cash and cash equivalents of $17.6 million. Without giving effect to the anticipated net proceeds from this offering, we do not believe that those cash and cash equivalents will be sufficient to enable us to fund our current operations for at least one year from the original issuance date of our consolidated financial statements for the period ended June 30, 2018. We believe that this raises substantial doubt about our ability to continue as a going concern. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for additional information on our assessment. Similarly, the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2017 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.
Components of Operating Results
Operating Expenses
Research and Development Expenses
Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our ABC Platform and product candidates. These expenses include certain payroll and personnel expenses, including stock-based compensation, for our research and product development employees; laboratory supplies and facility costs; consulting costs; contract manufacturing and fees paid to CROs to conduct certain research and development activities on our behalf; and allocated overhead, including rent, equipment, depreciation and utilities. We expense both internal and external research and development expenses as they are incurred. Costs of certain activities, such as manufacturing and preclinical and clinical studies, are generally recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed.
We are focusing substantially all of our resources and development efforts on the development of our product candidates, in particular KSI-301. We expect our research and development expenses to increase substantially following this offering and during the next few years, as we seek to initiate our Phase 2 studies, complete our clinical program, pursue regulatory approval of our drug candidates and prepare for a possible commercial launch. Predicting the timing or the final cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our drug candidates will receive regulatory approval with any certainty.
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General and Administrative Expenses
General and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation, professional fees for legal, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation and utilities, and other general operating expenses not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with stock exchange listing and SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public company.
Interest Expense
Interest expense consists primarily of interest expense related to our convertible notes, including accretion of debt discount and debt issuance costs.
Other Income (Expense), Net
Other income (expense), net primarily consists of changes in the fair value of warrants for Series B redeemable convertible preferred stock, changes in fair value of the derivative instruments and interest income.
Results of Operations
Comparison of the Six Months Ended June 30, 2017 and 2018
The following table summarizes our results of operations for the periods indicated:
Six Months Ended
June 30, |
Change | |||||||||||||||
2017 | 2018 | Dollar | Percent | |||||||||||||
(in thousands) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
$ | 10,098 | $ | 7,233 | $ | (2,865 | ) | (28 | )% | |||||||
General and administrative |
1,687 | 3,404 | 1,717 | 102 | ||||||||||||
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|
|
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|
|||||||||||
Loss from operations |
(11,785 | ) | (10,637 | ) | 1,148 | 10 | ||||||||||
Interest expense (includes $1,867 attributable to related parties for the six months ended June 30, 2018) |
(12 | ) | (3,347 | ) | (3,335 | ) | NM | * | ||||||||
Other income (expense), net (includes $1,585 other expense attributable to related parties for the six months ended June 30, 2018) |
14 | (2,345 | ) | (2,359 | ) | NM | * | |||||||||
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|
|
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|
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Net loss |
$ | (11,783 | ) | $ | (16,329 | ) | $ | (4,546 | ) | (39 | )% | |||||
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|
|
|
* |
NMnot meaningful |
Research and Development Expenses
Research and development expenses decreased $2.9 million, or 28%, from the six months ended June 30, 2017 to the six months ended June 30, 2018, as we incurred expenses relating to KSI-301 drug substance manufacturing runs for use in our Phase 1 and Phase 2 clinical trials primarily in fiscal 2017.
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The following table summarizes our research and development expenses:
Six Months Ended
June 30, |
Change | |||||||||||||||
2017 | 2018 | Dollar | Percent | |||||||||||||
(in thousands) | ||||||||||||||||
ABC Platform external expenses (1) |
$ | 949 | $ | 548 | $ | (401 | ) | (42 | )% | |||||||
KSI-301 program external expenses (2) |
5,427 | 3,488 | (1,939 | ) | (36 | ) | ||||||||||
Payroll and personnel expenses (3) |
1,693 | 1,866 | 173 | 10 | ||||||||||||
Other research and development expenses (4) |
2,029 | 1,331 | (698 | ) | (34 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total research and development expenses |
$ | 10,098 | $ | 7,233 | $ | (2,865 | ) | (28 | )% | |||||||
|
|
|
|
|
|
(1) |
ABC Platform external expenses primarily represent fees incurred for services of CMOs and CROs related to our ABC Platform. |
(2) |
KSI-301 program external expenses primarily represent fees incurred for services of CMOs and CROs related to development of KSI-301. |
(3) |
Payroll and personnel expenses include compensation of our personnel involved in research and development activities, including salaries, benefits and stock-based compensation. We do not allocate payroll and personnel expenses to specific programs, because these expenses relate to multiple programs and, as such, are separately classified. |
(4) |
Other research and development expenses represent direct expenses related to research and development activities other than those listed above. |
ABC Platform external expenses decreased by $0.4 million, or 42%, from the six months ended June 30, 2017 to the six months ended June 30, 2018. The decrease was primarily due to increased focus on KSI-301.
KSI-301 program external expenses decreased by $1.9 million, or 36%, from the six months ended June 30, 2017 to the six months ended June 30, 2018 due to completion of drug substance manufacturing runs for use in Phase 1 and Phase 2 clinical trials primarily in fiscal 2017.
Payroll and personnel expenses increased by $0.2 million, or 10%, from the six months ended June 30, 2017 to the six months ended June 30, 2018. The increase was a result of increased headcount.
Other research and development expenses decreased by $0.7 million, or 34%, from the six months ended June 30, 2017 to the six months ended June 30, 2018. The decrease was primarily due to increased focus on KSI-301. Our other research and development expenses may fluctuate in future periods as we elect to develop KSI-501 or other product candidates.
General and Administrative Expenses
General and administrative expenses increased $1.7 million, or 102%, from the six months ended June 30, 2017 to the six months ended June 30, 2018. The increase in general and administrative expenses was primarily attributable to an increase of $1.1 million in professional services related to accounting, audit and consulting services, an increase of $0.3 million in stock-based compensation and an increase of $0.3 million in additional allocated overhead expenses due to increased headcount.
Interest Expense
Interest expense for the six months ended June 30, 2018 was $3.3 million which was mainly attributable to interest expense on convertible notes issued in August 2017 and February 2018, including accretion of discount and issuance costs.
Other Income (Expense), Net
Other income (expense), net was $2.3 million for the six months ended June 30, 2018, which consisted of a $1.7 million increase in fair value of the redeemable convertible preferred stock warrant liability and a $0.8
77
million increase in fair value of the derivative instrument related to the convertible notes issued in February 2018, offset by interest income of $0.1 million.
Comparison of the Years Ended December 31, 2016 and 2017
The following table summarizes our results of operations for the periods indicated:
Years Ended
December 31, |
Change | |||||||||||||||
2016 | 2017 | Dollar | Percent | |||||||||||||
(in thousands) | ||||||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
$ | 14,053 | $ | 22,022 | $ | 7,969 | 57 | % | ||||||||
General and administrative |
3,098 | 3,499 | 401 | 13 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Loss from operations |
(17,151 | ) | (25,521 | ) | (8,370 | ) | 49 | |||||||||
Interest expense (includes $914 attributable to related parties for the year ended December 31, 2017) |
(6 | ) | (1,185 | ) | (1,179 | ) | NM | * | ||||||||
Other income (expense), net (includes $1,008 other expense attributable to related parties for the year ended December 31, 2017) |
25 | (1,230 | ) | (1,255 | ) | NM | * | |||||||||
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|
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|
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Net loss |
$ | (17,132 | ) | $ | (27,936 | ) | $ | (10,804 | ) | 63 | % | |||||
|
|
|
|
|
|
* |
NMnot meaningful |
Research and Development Expenses
Research and development expenses increased $8.0 million, or 57%, from the year ended December 31, 2016 to the year ended December 31, 2017.
The following table summarizes our research and development expenses:
Years Ended
December 31, |
Change | |||||||||||||||
2016 | 2017 | Dollar | Percent | |||||||||||||
(in thousands) | ||||||||||||||||
ABC Platform external expenses (1) |
$ | 7,582 | $ | 931 | $ | (6,651 | ) | (88 | )% | |||||||
KSI-301 program external expenses (2) |
| 14,021 | 14,021 | NM | * | |||||||||||
Payroll and personnel expenses (3) |
3,375 | 3,288 | (87 | ) | (3 | ) | ||||||||||
Other research and development expenses (4) |
3,096 | 3,782 | 686 | 22 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total research and development expenses |
$ | 14,053 | $ | 22,022 | $ | 7,969 | 57 | % | ||||||||
|
|
|
|
|
|
* |
NMnot meaningful |
(1) |
ABC Platform external expenses primarily represent fees incurred for services of CMOs and CROs related to our ABC Platform. |
(2) |
KSI-301 program external expenses primarily represent fees incurred for services of CMOs and CROs related to development of KSI-301. |
(3) |
Payroll and personnel expenses include compensation of our personnel involved in research and development activities, including salaries, benefits and stock-based compensation. We do not allocate payroll and personnel expenses to specific programs, because these expenses relate to multiple programs and, as such, are separately classified. |
(4) |
Other research and development expenses represent direct expenses related to research and development activities other than those listed above. |
ABC Platform external expenses decreased by $6.7 million, or 88%, from the year ended December 31, 2016 to the year ended December 31, 2017. The decrease was primarily attributable to the increased focus on the development of KSI-301 in the year ended December 31, 2017.
78
KSI-301 program external expenses were $14.0 million in the year ended December 31, 2017.
Payroll and personnel expenses did not significantly change from the year ended December 31, 2016 to the year ended December 31, 2017.
Other research and development expenses increased by $0.7 million, or 22%, from the year ended December 31, 2016 to the year ended December 31, 2017. The increase is attributable to the increase of $0.7 million in CMO and external contractor expenses, increase of $0.5 million in overhead and depreciation expenses, which was offset by a decrease in lab expenses of $0.5 million.
General and Administrative Expenses
General and administrative expenses increased $0.4 million, or 13%, from the year ended December 31, 2016 to the year ended December 31, 2017. The increase in general and administrative expenses was primarily attributable to an increase of $0.3 million in professional services related to legal, accounting, consulting services and an increase of $0.1 million in allocated overhead expenses.
Interest Expense
Interest expense for the year ended December 31, 2017 was $1.2 million which was mainly attributable to interest expense on our convertible notes issued in August 2017, including accretion of discount and issuance costs.
Other Income (Expense), Net
Other income (expense), net was $1.2 million for the year ended December 31, 2017, which was mainly attributable to the change in the fair value of the redeemable convertible preferred stock warrant liability.
Liquidity and Capital Resources; Plan of Operations
Sources of Liquidity
From inception through June 30, 2018, we funded our operations primarily with an aggregate of $94.4 million in gross cash proceeds from the sale and issuance of convertible preferred stock, convertible notes and warrants to purchase Series B redeemable convertible preferred stock. As of June 30, 2018, we had cash and cash equivalents of $17.6 million.
Future Funding Requirements
We have incurred net losses since our inception. For the years ended December 31, 2016 and 2017, we had net losses of $17.1 million and $27.9 million, respectively, and for the six months ended June 30, 2017 and 2018, we had net losses of $11.8 million and $16.3 million, respectively, and we expect to incur additional losses in future periods. As of June 30, 2018, we had an accumulated deficit of $85.7 million. Based on our current business plan, we believe that our existing cash, cash investments, and proceeds from this offering will provide sufficient funds to sustain operations through at least the next 12 months.
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to (i) to advance KSI-301 through enrollment of the Phase 2 clinical trial in the U.S., EU and rest of the world in patients with wet AMD and to expand the scope of our Phase 1 clinical trial for KSI-301 through completion of a Phase 1b clinical trial; (ii) to advance KSI-301 into Phase 2 clinical trials in China for wet AMD and DME/DR; (iii) to advance KSI-301 into the Phase 2 clinical trial in the U.S., EU and rest of the world in patients with DME/DR; (iv) towards research and development of our pipeline including KSI-501 and to initiate additional clinical studies in ophthalmology; and (v) for working capital and other general corporate purposes. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.
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Without giving effect to the anticipated net proceeds from this offering, we expect that our existing cash and cash equivalents will be insufficient to fund our operating expenses and clinical trial expenditure requirements through the next year. To finance our operations beyond that point, we would need to raise additional capital, which cannot be assured. We have concluded that these circumstances raise substantial doubt about our ability to continue as a going concern within one year after the original issuance date of our consolidated financial statements for the period ended June 30, 2018. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for additional information on our assessment.
Similarly, in its report on our consolidated financial statements for the year ended December 31, 2017, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations since inception and additional funding required to finance our operations raise substantial doubt about our ability to continue as a going concern.
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates or enter into collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, following the completion of this offering, we expect to incur additional costs associated with operating as a public company.
The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. However, we have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. The timing and amount of our operating expenditures and capital requirements will depend on many factors, including:
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the scope, timing, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates; |
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the number and scope of clinical programs we decide to pursue; |
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the scope and costs of manufacturing development and commercial manufacturing activities; |
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the extent to which we acquire or in-license other product candidates and technologies; |
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the cost, timing and outcome of regulatory review of our product candidates; |
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; |
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our ability to establish and maintain collaborations on favorable terms, if at all; |
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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates; |
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the costs associated with being a public company; and |
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the cost and timing associated with commercializing our product candidates, if they receive marketing approval. |
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make
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certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves.
Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. See the section of this prospectus titled Risk Factors for additional risks associated with our substantial capital requirements.
2017 Convertible Notes
In August 2017, we received $10.0 million in gross proceeds from the issuance of convertible notes, or 2017 convertible notes, and warrants to purchase Series B redeemable convertible preferred stock. Interest on the unpaid principal balance of the 2017 convertible notes accrues and compounds monthly from October 1, 2017 at a contractual rate of 2.5% per month and is payable at maturity. Unless converted, the 2017 convertible notes mature on the earlier of (1) December 1, 2020 and (2) the date of the consummation of a change of control.
The 2017 convertible notes include embedded derivatives that are required to be bifurcated and accounted for separately as a single, compound derivative instrument. The estimated fair value of this derivative instrument was immaterial as of the issuance date and as of June 30, 2018, due to the probability of occurrence of the underlying events being remote. The 2017 convertible notes have an annual effective interest rate of 38.18%. Interest expense, including amortization of debt discount and issuance costs for the year ended December 31, 2017 and six months ended June 30, 2018 was $1.1 million and $1.7 million, respectively.
Our obligations with respect to the 2017 convertible notes are secured by all of our tangible and intangible assets. The 2017 convertible notes include covenants that restrict our ability to issue capital stock, repurchase or redeem capital stock, dispose of assets, incur debt, incur liens and make distributions to stockholders, including dividends. As of December 31, 2017 and June 30, 2018, we were in compliance with regards to all covenants with respect to the 2017 convertible notes. The 2017 convertible notes have customary events of default.
After January 31, 2018, each holder of 2017 convertible notes may at any time, at its option, elect to convert the principal amount and accrued interest of such convertible notes into shares of Series B redeemable convertible preferred stock at a price of $5.00 per share. Upon the consummation of an IPO, the 2017 convertible notes outstanding principal balance and accrued but unpaid interest will be repaid, unless the holder elects, at its option, to convert into shares of common stock issued in such IPO at the conversion price equal to the issuance price of common stock issued in such IPO.
As additional consideration for the notes, we issued warrants to purchase an aggregate of 500,000 shares of Series B redeemable convertible preferred stock at the exercise price of $0.01, as adjusted for any stock splits, stock dividends, recapitalizations, reclassifications, combinations or similar transactions. Upon the consummation of this offering, those warrants will be converted into warrants to purchase shares of our common stock and are expected to be exercised.
2018 Convertible Notes
In February 2018, we received $33.0 million in gross proceeds from the issuance of convertible notes, or the 2018 convertible notes, of which we issued $31.2 million and $1.8 million aggregate principal amounts on February 2, 2018 and February 23, 2018, respectively. Interest on the unpaid principal balance of the notes accrues from the date of issuance, and compounds monthly from February 28, 2018 at a rate of 6.0% per year and is payable at maturity. Unless converted, the 2018 convertible notes mature on the earlier of (1) December 1, 2020 and (2) the date of the consummation of a change of control.
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The 2018 convertible notes include embedded derivatives that are required to be bifurcated and accounted for separately as a single, compound derivative instrument. The estimated fair value of this derivative instrument was $6.6 million as of the issuance date and $7.4 million as of June 30, 2018. The 2018 convertible notes have an annual effective interest rate of 15.10% for the principal amount issued on February 2, 2018 and 15.45% for the principal amount issued on February 23, 2018. Interest expense, including amortization of debt discount and issuance costs for the six months ended June 30, 2018 was $1.5 million.
Our obligations with respect to the 2018 convertible notes are unsecured and subordinated to our obligations with respect to the 2017 convertible notes. The 2018 convertible notes include covenants that restrict our ability to issue capital stock, repurchase or redeem capital stock, dispose of assets, incur debt, incur liens and make distributions to stockholders, including dividends. As of June 30, 2018, we were in compliance with regards to all covenants with respect to the 2018 convertible notes. The 2018 convertible notes have customary events of default.
The 2018 convertible notes will automatically convert into shares of our common stock at a price equal to (1) 80% of the initial price to public in a qualified initial public offering if such offering is completed prior to February 2, 2019 and (2) 75% of the initial price to public in a qualified initial public offering if such offering is completed on or after February 2, 2019. A qualified initial public offering is one in which we receive aggregate gross proceeds of at least $75.0 million or all of the 2017 convertible notes convert into shares of our common stock. In connection with an offering that does not constitute a qualified initial public offering, each holder of 2018 convertible notes may, at its option, elect to convert the principal amount and accrued interest of the 2018 convertible notes owned by such holder into shares of common stock at a price equal to (1) 80% of the initial price to public if such offering is completed prior to February 2, 2019 and (2) 75% of the initial price to public if such offering is completed on or after February 2, 2019.
Summary Statement of Cash Flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
Years Ended
December 31, |
Six Months Ended
June 30, |
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2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash (used in) provided by: |
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Operating activities |
$ | (16,047 | ) | $ | (17,655 | ) | $ | (7,762 | ) | $ | (15,707 | ) | ||||
Investing activities |
(771 | ) | (209 | ) | (42 | ) | (38 | ) | ||||||||
Financing activities |
(120 | ) | 9,637 | (87 | ) | 31,991 | ||||||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash |
$ | (16,938 | ) | $ | (8,227 | ) | $ | (7,891 | ) | $ | 16,246 | |||||
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Cash Flows from Operating Activities
Net cash used in operating activities was $15.7 million for the six months ended June 30, 2018. Cash used in operating activities was primarily due to the use of funds in our operations to develop KSI-301, resulting in a net loss of $16.3 million, adjusted by non-cash charges of $6.8 million offset by a change in operating assets and liabilities of $6.2 million. The non-cash charges primarily consisted of $1.7 million in loss due to change in fair value of redeemable convertible preferred stock warrant liability, $0.8 million in loss due to change in fair value of derivative instrument related to the convertible notes issued in February 2018, $3.3 million in non-cash interest expense and amortization of debt discount and issuance costs, $0.2 million of depreciation expense, and $0.7 million of stock-based compensation. The change in net operating assets and liabilities was primarily due to a decrease in accrued liabilities of $4.1 million mainly related to a decrease in accrued research and development and accrued compensation expenses, a decrease in accounts payable of $1.8 million due to the timing of vendor payments and an increase in prepaid and other assets of $0.3 million mainly due to an increase in advance payments.
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Net cash used in operating activities was $7.8 million for the six months ended June 30, 2017. Cash used in operating activities was primarily due to the use of funds in our operations to develop KSI-301, resulting in a net loss of $11.8 million, adjusted by non-cash charges of $0.4 million and change in operating assets and liabilities of $3.6 million. The non-cash charges primarily consisted of $0.2 million of depreciation expense and $0.1 million of stock-based compensation. The change in net operating assets and liabilities was primarily due to an increase in accrued liabilities of $1.8 million mainly related to an increase in accrued research and development and accrued compensation expenses, an increase in accounts payable of $1.4 million due to the timing of vendor payments and a decrease in prepaid and other assets of $0.4 million mainly due to amortization of prepaid expenses.
Net cash used in operating activities was $17.7 million for the year ended December 31, 2017. Cash used in operating activities was primarily due to the use of funds in our operations to develop KSI-301, resulting in a net loss of $27.9 million, adjusted by non-cash charges of $3.2 million offset by a change in operating assets and liabilities of $7.0 million. The non-cash charges primarily consisted of $1.3 million in expense due to change in fair value of redeemable convertible preferred stock warrant liability, $1.2 million in non-cash interest expense and amortization of debt discount and issuance costs, $0.5 million of depreciation and amortization, and $0.3 million of stock-based compensation. The change in net operating assets and liabilities was primarily due to an increase in accrued liabilities of $4.3 million mainly related to an increase in accrued research and development and accrued compensation expenses, an increase in accounts payable of $2.2 million due to the timing of vendor payments and a decrease in prepaid and other assets of $0.4 million mainly due to amortization of prepaid expenses.
Net cash used in operating activities was $16.0 million for the year ended December 31, 2016. Cash used in operating activities was due to the use of funds in our operations to develop our ABC Platform, resulting in a net loss of $17.1 million, offset by non-cash charges of $0.3 million of depreciation expense and $0.3 million of stock-based compensation expense, a decrease in prepaid expense and other current assets of $0.3 million, and an increase in accrued liabilities and other current assets of $0.2 million.
Cash Flows from Investing Activities
Net cash used in investing activities was less than $0.1 million for the six months ended June 30, 2018 and primarily related to the purchase of property and equipment.
Net cash used in investing activities was less than $0.1 million for the six months ended June 30, 2017 and primarily related to the purchase of property and equipment.
Net cash used in investing activities was $0.2 million for the year ended December 31, 2017 and primarily related to purchase of property and equipment.
Net cash used in investing activities was $0.8 million for the year ended December 31, 2016, which was related to $0.8 million used in the purchase of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities was $32.0 million for the six months ended June 30, 2018, which consisted primarily of $33.0 million of gross proceeds from issuance of convertible notes, offset by $0.8 million of deferred offering costs, $0.1 million of debt issuance costs, $0.1 million of principal payments under a capital lease agreement and less than $0.1 million payments related to tenant improvement allowance payable.
Net cash used in financing activities was $0.1 million for the six months ended June 30, 2017, which consisted primarily of principal payments under a capital lease agreement and payments related to tenant improvement allowance payable.
Net cash provided by financing activities was $9.6 million for the year ended December 31, 2017, which consisted primarily of $10.0 million of gross proceeds from issuance of convertible notes, offset by $0.2 million of debt issuance costs, $0.1 million of principal payments under a capital lease agreement and $0.1 million payments related to tenant improvement allowance payable.
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Net cash used in financing activities was $0.1 million for the year ended December 31, 2016, which consisted primarily of principal payments under a capital lease agreement and payments related to tenant improvement allowance payable.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2017:
Payments Due by Period | ||||||||||||||||||||
Less than
1 year |
1 to 3
years |
3 to 5
years |
More than
5 years |
Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Capital lease obligations (1) |
$ | 135 | $ | 61 | $ | | $ | | $ | 196 | ||||||||||
Operating lease obligations (2) |
514 | 1,145 | 1,214 | 526 | 3,399 | |||||||||||||||
Manufacturing agreements (3) |
7,429 | 3,432 | | | 10,861 | |||||||||||||||
Tenant improvement obligations (4) |
118 | 191 | 191 | 117 | 617 | |||||||||||||||
2017 convertible notes, including interest (5) |
| 25,578 | | | 25,578 | |||||||||||||||
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Total |
$ | 8,196 | $ | 30,407 | $ | 1,405 | $ | 643 | $ | 40,651 | ||||||||||
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(1) |
We lease certain laboratory equipment under non-cancelable lease agreements, which are required to be paid over the contractually agreed period. |
(2) |
We lease our facility under a non-cancelable operating lease. In January 2013, we entered into a lease for our current laboratory and office space that commenced in October 2013 and expires in October 2018. In March 2016, we entered into a lease amendment that extended the lease term to October 31, 2023. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes. |
(3) |
We have entered into service agreements with a third-party CMO, pursuant to which the CMO agreed to perform activities in connection with the manufacturing process of certain compounds. Such agreements state that planned activities that are included in some signed work orders are binding and, therefore, obligate us to pay the full price of the work order upon satisfactory delivery of products and services. Per the terms of the agreements, we have the option to cancel signed orders at any time upon written notice, which may or may not be subject to payment of a cancellation fee depending on the timing of the written notice in relation to the commencement date of the work, with the maximum cancellation fee equal to the full price of the work order. Although the payment of the cancellation fee will generally be due at the scheduled commencement date, we may record the manufacturing expense and related obligation as an accrued liability at the time of cancellation. |
(4) |
We have tenant improvement obligations under our facilities lease agreements, which are required to be paid over the contractually agreed period. |
(5) |
We received $10.0 million in gross proceeds from the issuance of 2017 convertible notes and warrants to purchase Series B redeemable convertible preferred stock in August 2017. Interest on the unpaid principal balance of the 2017 convertible notes accrues from October 1, 2017 and compounds monthly from October 31, 2017 at a rate of 2.5% per month and is payable at maturity. Unless converted, the 2017 convertible notes mature on the earlier of (1) December 1, 2020 or (2) the date of the consummation of a change of control. If not converted or matured before December 1, 2020 we will repay $10.0 million principal and $15.6 million accrued interest. |
We received $33.0 million in gross proceeds from the issuance of 2018 convertible notes in February 2018, which is not included in the above table. Interest on the unpaid principal balance of the 2018 convertible notes accrues from the date of issuance, and compounds monthly from February 28, 2018 at a rate of 6.0% per year and is payable at maturity. Unless converted, the 2018 convertible notes mature on the earlier of (1) December 1, 2020 and (2) the date of the consummation of a change of control. If not converted or matured before December 1, 2020, we will repay $33.0 million principal and $6.1 million accrued interest.
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We enter into contracts in the normal course of business with third party contract organizations for preclinical studies and testing, manufacturing, and providing other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
We are also party to a cancellable assignment and license agreement that would require us to make milestone payments of up to $33.2 million and royalty payments on net sales of products utilizing KSI-201 and related technology. Such milestones and royalties are dependent on future activity or product sales and are not provided for in the table above as the timing and amounts, respectively, are not estimable.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated 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 accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving managements judgments and estimates.
While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
Redeemable Convertible Preferred Stock
We record all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Company, or a liquidation event such as a merger, acquisition and sale of all or substantially all of our assets, each of which we refer to as a deemed liquidation event, proceeds will be distributed in accordance with the liquidation preferences set forth in the amended and restated certificate of incorporation unless the holders of redeemable convertible preferred stock have converted their redeemable convertible preferred shares into common stock. Therefore, the redeemable convertible preferred stock is recorded in mezzanine equity on the consolidated balance sheet as events triggering the liquidation preferences are not solely within our control. We have not adjusted the carrying values of the redeemable convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate us to pay the liquidation preferences to holders of shares of redeemable convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur.
Redeemable Convertible Preferred Stock Warrants
We account for warrants to purchase shares of our redeemable convertible preferred stock as liabilities at their estimated fair value because these warrants may obligate us to transfer assets to the holders at a future date under certain circumstances, such as a merger, acquisition, reorganization, sale of all or substantially all of our assets, each a change of control event. The warrants are recorded at fair value upon issuance and are subject to remeasurement to fair value at each period end, with any fair value adjustments recognized in the consolidated statements of operations and comprehensive loss. We will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise or expiration of the redeemable convertible preferred stock warrants, occurrence of a deemed liquidation event or conversion of redeemable convertible preferred stock into common stock.
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If all outstanding shares of the series of redeemable convertible preferred stock for which the redeemable convertible preferred stock warrants are exercisable for are converted to shares of common stock or any other security in connection with a qualified IPO or otherwise, then after such conversion (1) the redeemable convertible preferred stock warrants shall become exercisable for such number of shares of common stock or such other security as is equal to the number of shares of common stock or such other security that each share of redeemable convertible preferred stock was converted into, multiplied by the number of shares subject to the redeemable convertible preferred stock warrants immediately prior to such conversion, and (2) the exercise price of the redeemable convertible preferred stock warrants shall automatically be adjusted to equal to the number obtained by dividing (a) the aggregate exercise price for which the redeemable convertible preferred stock warrants were exercisable immediately prior to such conversion by (b) the number of shares of common stock or such other security for which the redeemable convertible preferred stock warrants are exercisable immediately after such conversion. A Qualified IPO is our first sale of common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, at a per share public offering price (prior to underwriter commissions and expenses) of at least $10.00 (as adjusted for stock splits, combinations, dividends and the like) and that results in aggregate gross cash proceeds to us of an amount equal to or greater than $75.0 million (before deduction of underwriting discounts, commissions and expenses).
Derivative Instrument
The 2017 and 2018 convertible notes contain embedded features that provide the lenders with multiple settlement alternatives. Certain of these settlement features provide the lenders a right to a fixed number of our shares upon conversion of the notes, or the conversion option. Other settlement features provide the lenders the right or the obligation to receive cash or a variable number of our shares upon the completion of a capital raising transaction, change of control or our default, or the redemption features.
The 2017 convertible notes conversion option does not meet the requirements for separate accounting as an embedded derivative. However, the redemption features do meet the requirements for separate accounting and are accounted for as a single, compound derivative instrument. The derivative instrument is recorded at fair value at inception and is subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss. The estimated fair value of the derivative instrument was immaterial as of the issuance date and as of June 30, 2018, due to the probability of occurrence of the underlying events being remote. We will continue to adjust the derivative instrument for changes in fair value until the earlier of the conversion or redemption of the 2017 convertible notes.
The 2018 convertible notes conversion option does not meet the requirements for separate accounting as an embedded derivative. However, the redemption features do meet the requirements for separate accounting and are accounted for as a single, compound derivative instrument. The derivative instrument is recorded at fair value at inception and is subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss. The estimated fair value of the derivative instrument was $6.6 million as of the issuance date and $7.4 million as of June 30, 2018. We will continue to adjust the derivative instrument for changes in fair value until the earlier of the conversion or redemption of the 2018 convertible notes. We expect to record a non-cash charge in the third quarter of 2018 as a result of the final mark-to-market adjustment of the derivative instrument to fair value upon the completion of this offering.
Accrued Research and Development
Our preclinical study and clinical trial accruals are a component of research and development expenses and are based on patient enrollment and related costs at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs. We estimate preclinical study and clinical trial expenses based on level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities and other current liabilities on the
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balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CROs or CMOs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.
Stock-Based Compensation Expense
We use a fair value-based method to account for all stock-based compensation arrangements with employees including stock options and stock awards. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option-pricing model.
The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. Prior to January 1, 2017, stock-based compensation expense recognized at fair value included the impact of estimated forfeitures. Upon the adoption of ASU 2016-09 for periods after January 1, 2017, we no longer record estimated forfeitures on share-based awards and, instead, have elected to record forfeitures as they occur.
Equity instruments issued to non-employees are recorded at their fair value using the Black-Scholes valuation model on the measurement date and are subject to periodic adjustments as the underlying equity instruments vest. The non-employee stock-based compensation expense was not material for all periods presented.
Estimates of the fair value of equity awards as of the grant date using valuation models such as the Black-Scholes option pricing model are affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. Changes in the following assumptions can materially affect the estimate of the fair value of stockbased compensation:
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E xpected Term The expected term is calculated using the simplified method, which is available where there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term. |
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E xpected Volatility For all stock options granted to date, the volatility data was estimated based on a study of publicly traded industry peer companies as we did not have any trading history for our common stock. For purposes of identifying these peer companies, we considered the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, we measured historical volatility over a period equivalent to the expected term. |
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E xpected Dividend The Black-Scholes valuation model valuation model calls for a single expected dividend yield as an input. We currently have no history or expectation of paying cash dividends on our common stock. Accordingly, we have estimated the dividend yield to be zero. |
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R isk-Free Interest Rate The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. |
Common Stock Valuations
The estimated fair value of the common stock underlying our stock options and stock awards was determined at each grant date by our board of directors, with input from management. All options to purchase shares of our common stock are intended to be exercisable at a price per share not less than the per-share fair value of our common stock underlying those options on the date of grant.
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In the absence of a public trading market for our common stock, on each grant date, we develop an estimate of the fair value of our common stock based on the information known to us on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock, and in part on input from an independent third-party valuation firm. As is provided for in Section 409A of the U.S. Internal Revenue Code, or the Code, we generally rely on our valuations for up to twelve months unless we have experienced a material event that would have affected the estimated fair value per common share.
Our valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , or the Practice Aid.
The assumptions used to determine the estimated fair value of our common stock are based on numerous objective and subjective factors, combined with management judgment, including:
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external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry; |
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our stage of development and business strategy; |
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the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock; |
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the prices at which we sold shares of our redeemable convertible preferred stock; |
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our financial condition and operating results, including our levels of available capital resources; |
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the progress of our research and development efforts; |
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equity market conditions affecting comparable public companies; and |
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general U.S. market conditions and the lack of marketability of our common stock. |
The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:
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Option Pricing Method. Under the option pricing method, or OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options. |
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Probability-Weighted Expected Return Method. The probability-weighted expected return method, or PWERM, is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. |
Based on our early stage of development and other relevant factors, we determined that a hybrid approach of the OPM and the PWERM methods was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock for valuations performed as of December 31, 2016, December 31, 2017, and March 16, 2018. In determining the estimated fair value of our common stock, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.
Following the completion of this offering, our board of directors intends to determine the fair value of our common stock based on the closing quoted market price of our common stock on the date of grant.
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Income Taxes
We provide for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards, and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.
We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the positions sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (1) the factors underlying the sustainability assertion have changed and (2) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
Net operating loss carryforwards, or NOLs, and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service, or IRS, and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. We have not determined whether there has been any cumulative ownership changes or the impact on the utilization of the loss carryforwards if such changes have occurred.
As of December 31, 2017, we had unrecognized tax benefits, all of which would affect income tax expense if recognized, before consideration of our valuation allowance. We do not expect that our uncertain tax positions will materially change in the next twelve months.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation through the Tax Act. The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates and implementing a territorial tax system. The corporate tax rate will be reduced from 35% to 21% for tax years beginning after December 31, 2017. This rate change resulted in a $2.5 million reduction in our deferred tax assets from the prior year with a corresponding offset to valuation allowance. Under the Tax Act, net operating losses arising after December 31, 2017 do not expire and cannot be carried back. However, the Tax Act limits the amount of net operating losses that can be used annually to 80% of taxable income for periods beginning after December 31, 2017. Existing net operating losses arising in years ending on or before December 31, 2017 are not affected by these provisions.
The SEC released SAB 118 on December 22, 2017 to provide guidance in the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the tax reform. The ultimate impact of tax reform may differ from our accounting for the relevant matters of the Tax Act, due to changes in clarification and interpretive guidance that may be issued by the IRS and actions we may take in response to the Tax Act. Tax reform is highly complex and we will continue to assess the impact that various provisions will have on our business. Any subsequent adjustment to these amounts will be recorded to current tax expense when the analysis is complete. Accordingly, we recorded a provisional charge for the
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remeasurement of deferred taxes at 21% as of December 31, 2017, with a corresponding offset to our valuation allowance. We consider the accounting of the deferred tax re-measurements to be complete. However, ongoing guidance and accounting interpretation are expected in the near term and we expect to complete our analysis within the measurement period in accordance with SAB 118.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission, or SEC.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or JOBS Act, permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until such pronouncements are made applicable to private companies, unless we otherwise irrevocably elect not to avail ourselves of this exemption. However, we have chosen to irrevocably opt out of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.
Recent Accounting Pronouncements
See the sections titled Summary of Significant Accounting PoliciesRecent Accounting Pronouncements in Note 2 to our consolidated financial statements included elsewhere in this prospectus for additional information.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates or exchange rates. As of June 30, 2018, we had cash and cash equivalents of $17.6 million, consisting of cash held in bank accounts and money market funds denominated in U.S. dollars. Due to the nature of our cash equivalents, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents.
We do not believe that inflation, interest rate changes or exchange rate fluctuations had a significant impact on our results of operations for any periods presented herein.
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Overview
We are a clinical stage biopharmaceutical company specializing in novel therapeutics to treat chronic, high-prevalence retinal diseases. Our most advanced product candidate is KSI-301, a biologic therapy built with our antibody biopolymer conjugate platform, or ABC Platform, which is designed to maintain potent and effective drug levels in ocular tissues. We believe that KSI-301, if approved, has the potential to become an important anti-VEGF therapy in wet age-related macular degeneration, or wet AMD, and diabetic retinopathy, or DR. KSI-301 and our ABC Platform were developed at Kodiak, and we own worldwide rights to those assets, including composition of matter patent protection for KSI-301. We have applied our ABC Platform to develop additional product candidates beyond KSI-301, including KSI-501, our bispecific anti-IL-6/VEGF bioconjugate. We intend to progress these and other product candidates to address high-prevalence ophthalmic diseases.
We initiated our first-in-human, Phase 1 clinical study of KSI-301 in the United States in nine patients in July 2018. We have successfully dosed all patients at the pre-planned dose levels and reached the primary safety and tolerability endpoint of the study. No patients in the Phase 1 study have experienced any serious adverse events. There have been no drug-related adverse events, no dose limiting toxicities and, notably, no intraocular inflammation observed at any dose. Improvements in best corrected visual acuity, or BCVA, and reductions in macular thickness on optical coherence tomography imaging, or OCT, have been observed at all dose levels. Over the four-week follow up period after the single dose, six of nine subjects had achieved a 10 or more letter improvement in BCVA from baseline (defined as average of screening and day one visits). In the high dose cohort of three patients (patients 7, 8, and 9) at the four-week visit, the BCVA improvements from baseline were 13, 10.5, and 29.5 letters, respectively, with associated improvements on macular thickness evidenced on OCT. This suggests that KSI-301, a large antibody biopolymer conjugate, is biologically active at all dose levels tested in patients based on pharmacodynamic measures (OCT imaging of retinal thickness) and efficacy measures (vision improvement). Having successfully met the primary endpoint of safety and tolerability in the Phase 1 study, with the additional observations around bioactivity, we plan to further evaluate the highest dose tested of KSI-301, 5 mg, in a series of global studies in wet AMD and DR, including diabetic macular edema, or DME.
We expect to be dosing patients in a global Phase 2 study of KSI-301 in the United States in early 2019, and clinical trial applications to ex-U.S. regulatory authorities for this study are in progress. This randomized, controlled study in approximately 400 treatment naïve wet AMD patients will evaluate the non-inferiority of intravitreal KSI-301 administered as infrequently as every 16 weeks versus EYLEA (aflibercept) administered on its every 8-week labeled regimen. FDA has indicated that this Phase 2 study, if successful, can be supportive of a marketing application for KSI-301 as one of two pivotal studies in wet AMD required for approval in the United States. We also plan to initiate a Phase 2 clinical trial of KSI-301 in the U.S. and EU in DR patients. We additionally plan to initiate two Phase 2 studies in China, one in wet AMD and one in DR, and we are planning for these studies to have the same clinical design frameworks as our U.S. and EU studies. In parallel to initiating our Phase 2 studies, we intend to expand the scope of our Phase 1 study into a Phase 1b open label study to evaluate the treatment effect and safety of sequential doses of KSI-301 with more intensive ophthalmic imaging and ocular pharmacokinetic assessments. Our IND for KSI-301 covers retinal vascular diseases and, in the future, we may also pursue other target indications for KSI-301, such as macular edema due to retinal vein occlusion, choroidal neovascularization due to pathologic myopia, or other diseases for which existing anti-VEGF therapies have been approved.
Target Indications
Our initial target indications for KSI-301 are wet AMD and DR. Wet AMD is a chronic and progressive disease of the central portion of the retina, known as the macula, which is responsible for sharp central vision and color perception. It is caused by abnormal blood vessels that grow underneath the retina and leak blood and fluid into the macula, causing visual distortion and acute vision loss, which can be permanent. Wet AMD is the leading cause of severe vision loss in adults over the age of 50 in the United States and the EU. We estimate the
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combined prevalence of wet AMD in the United States and the EU to be approximately 2.9 million people. DR is a disease resulting from diabetes, in which chronically elevated blood sugar levels cause progressive damage to blood vessels in the retina. DR is the leading cause of blindness in working age adults in the United States and the EU. We estimate that the number of people in the United States and the EU with DR in 2015 was approximately 28.5 million.
Ongoing and Planned Clinical Development
The following chart summarizes our clinical development plan for our lead product candidate, KSI-301:
For approval in the U.S. and the EU, we anticipate that one additional confirmatory study would be required for each of wet AMD and DR/DME and expect that the design framework for these studies would be similar to the planned Phase 2 studies.
Additional product candidates are in preclinical development. A final lead candidate has been selected for KSI-501, a bispecific antibody biopolymer conjugate being developed for DME and uveitis. KSI-201 (a bispecific antibody biopolymer conjugate) and KSI-401 (a mono-specific antibody biopolymer conjugate) are at the pre-IND stage being developed for treatment resistant wet AMD and dry AMD, respectively.
Current Standard of Care for Wet AMD and DR
Overexpression of vascular endothelial growth factor, or VEGF, in ocular tissues is central to the pathogenesis and clinical manifestations of wet AMD and DR. VEGF is a protein produced by cells that stimulates the formation of new blood vessels, a process called neovascularization, and induces vascular permeability. In wet AMD and DR, fluid that exits from blood vessels causes swelling, or edema, of the retina and loss of vision. This loss of vision can be reversed if treated early with an anti-VEGF agent to suppress VEGF signaling. Delayed treatment or undertreatment can result in permanent retinal damage and blindness. To reach effective ocular tissue concentrations, these agents must be injected into the vitreous humor, the jelly-like substance that fills the area between the lens and retina. These injections must occur at regular intervals in order to maintain anti-VEGF effects.
Lucentis (ranibizumab), marketed by Genentech, Inc., a subsidiary of the Roche Group, in the United States and by Novartis AG outside the United States, and EYLEA (aflibercept), marketed by Regeneron Pharmaceuticals, Inc. in the United States and by Bayer HealthCare LLC outside the United States, are anti-VEGF therapies that have become the standard of care for treating wet AMD and severe forms of DR based on pivotal clinical studies in which Lucentis was injected every four weeks and EYLEA was injected every eight weeks (after three initial monthly doses in the case of wet AMD and after five initial monthly doses in the case of DR with DME). Avastin (bevacizumab), marketed for non-ocular indications by Genentech in the United States and by Roche outside of the United States, is an anti-VEGF cancer therapy that shares structural characteristics with Lucentis and is commonly used off-label to treat wet AMD and DR through intravitreal injection dosed every four weeks.
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Annual worldwide sales of Lucentis and EYLEA for all indications totaled approximately $9.6 billion in 2017. We believe that a substantial majority of these sales were in connection with the treatment of wet AMD and DR. Avastin, which is currently approved and marketed for the treatment of cancer, is also used off-label to treat wet AMD and DR. We estimate that off-label Avastin represents approximately 60% of the U.S. wet AMD market by volume. We believe that an improved anti-VEGF therapy could further increase both adoption of approved therapies and extend the duration patients remain on treatment, and thus the total addressable market opportunity in wet AMD and DR could be substantial.
Limitations of Current Anti-VEGF Therapies
The limitations of current anti-VEGF therapies include:
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Existing anti-VEGF therapies block VEGF activity effectively but have limited durability. We believe current anti-VEGF therapies maintain potent and effective drug levels in ocular tissues for three to six weeks after injection on average. But typical treatment intervals in real-world clinical practice are longer. When a patients dosing cycle is extended beyond the durability of the anti-VEGF agent, and the amount of drug remaining in the eye falls below therapeutic levels, the disease can progress and cause cumulative and permanent retinal damage. Most wet AMD and DR patients will require protracted anti-VEGF therapy, possibly for life. Under these circumstances, strict adherence to the manufacturers labeled treatment regimen of every four weeks for Lucentis and every eight weeks for EYLEA is challenging. |
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Real-world utilization of current anti-VEGFs results in undertreatment, which diminishes effectiveness. A divergence between the efficacy of Lucentis and EYLEA in pivotal clinical trials and in the real world is evidenced in multiple studies and is increasingly recognized as an important unmet medical need. A 2017 report by the Angiogenesis Foundation suggested that the burden involved in monthly visits for evaluation and treatment causes patients and physicians to extend treatment intervals, which in turn results in undertreatment and visual outcomes that fall short of the results seen in clinical trials. For example, Lucentis was tested and failed to successfully extend the treatment interval to 12-week dosing, with patients going back to pre-treatment baseline or even losing vision at the end of the first year of treatment, on average. The Lucentis U.S. product labeling refers to this regimen as an option which is not as effective as monthly dosing. Recently, the FDA allowed an update to EYLEAs labeling to allow 12-week dosing, but only in the second year of treatment (after one full year of intensive treatment). The labeling refers to it as not as effective as the recommended every 8-week dosing. Even a small deviation from per label dosing can be devastating for vision. Missing as few as one or two injections in a year from EYLEAs recommended dosing, results in almost one line of vision lost. |
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Patients are not sustaining visual acuity gains over the long term. Following exit from tightly controlled clinical trials into the real-world environment, patients, on average, lose all the gains in visual acuity that had been previously achieved. |
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Damage caused by these retinal diseases may be irreversible if anti-VEGF therapy is not initiated early in the disease progression. A study in patients with diabetic macular edema, or DME, a severe form of DR, found that undertreatment in the early course of patients disease may reduce the patients ability to respond to anti-VEGF therapies. |
KSI-301: Our Lead Product Candidate
Our lead product candidate, KSI-301, is a novel, clinical stage anti-VEGF biological agent that combines inhibition of a known pathway with a potentially superior ocular durability profile compared to currently marketed drugs for wet AMD and DR.
KSI-301 is a bioconjugate comprised of two components. The first component is a humanized anti-VEGF monoclonal antibody which binds to human VEGF. The antibody component is designed to be pharmacologically similar to Lucentis. The second component of KSI-301 is an optically clear phosphorylcholine-based biopolymer which is stably attached to the antibody and which is intended to augment the stability and residence time of the bioconjugate in the eye without compromising its anti-VEGF activity.
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We believe that KSI-301 can be a highly differentiated treatment with an improved durability profile compared to current anti-VEGF therapies because of its design features and the associated performance benefits we have observed with KSI-301 in pre-clinical studies. These design features include (1) an ultrahigh molecular weight of 950 kDa versus 48 kDa (Lucentis) and 115 kDa (EYLEA) to increase intraocular durability, (2) a phosphorylcholine-based antibody biopolymer conjugate to increase ocular tissue bioavailability while preserving bioactivity, along with increased stability, and (3) an increased formulation strength to deliver higher molar doses of anti-VEGF (7x versus Lucentis and 3.5x versus EYLEA). We believe these qualities of KSI-301 have the potential to translate into clinically meaningful advantages over currently available therapies.
As a result, we believe that KSI-301 will (1) keep patients on mechanism for longer than currently available anti-VEGF therapies, thereby preventing repeated undertreatment through overextension of treatment intervals, (2) match the required frequency of injections to keep the patients disease quiescent with the frequency of visits that patient and physician behavior suggest is achievable in clinical practice and (3) sustain the strong visual acuity gains of the early intensive treatment phase over the long term and outside of clinical trial contexts. By addressing the primary causes of undertreatment, KSI-301 has the potential to improve and sustain visual acuity outcomes in patients with neovascular conditions of the retina such as wet AMD and DR.
Figure: The structure of KSI-301. The branched phosphorylcholine-based biopolymer is optically clear.
The bioactive antibody component is represented by the darker portion in the middle of the image.
The two components are stably attached to each other, forming bioconjugate KSI-301.
Clinical Development
KSI-301 Phase 1 Clinical Study
We submitted our IND to the FDA in June 2018 for the use of KSI-301 in patients with retinal vascular diseases (including wet AMD and DR). We initiated our first-in-human, Phase 1, single ascending dose clinical study of KSI-301 in the United States in nine patients with center-involved diabetic macular edema in July 2018. Objectives of this study included assessment of ocular and systemic safety, tolerability, and establishment of a maximum tolerated dose. Three dose levels of KSI-301 were evaluated: 1.25 mg, 2.5 mg, and 5 mg, with 3 patients per cohort. We have successfully dosed all patients at the pre-planned dose levels and reached the primary safety and tolerability endpoint of the study, which occurred after each patient reached the 14-day follow up period following the single injection of KSI-301. The patients are continuing to be followed through a 12-week safety follow-up period. To date, no patients in the Phase 1 study have experienced any serious adverse events. To date, there have been no drug-related adverse events, no dose limiting toxicities and, notably, no intraocular inflammation observed at any dose. Improvements in BCVA and reductions in macular thickness on OCT have been observed at all dose levels.
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The Phase 1 trial in a heavily pre-treated patient population, with eight of nine DME patients having previously received anti-VEGF therapy, was designed to evaluate safety, yet biological activity of our antibody biopolymer conjugate was demonstrated across all dose cohorts. The data are shown in the figure below.
Figure-Individual patient data from KSI-301 Phase 1 study. Change from baseline over time (days post-injection x-axis) in best corrected visual acuity score (green dashed line, right y-axis, in number of letters, higher is better) and central subfield thickness on OCT imaging (blue solid line, left y-axis, in microns, lower is better).
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The patients enrolled in our Phase 1 study fell into four categories of patients with DME:
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Based on published data after one month of treatment with Lucentis or EYLEA, from RIDE, RISE, VIVID, VISTA, and DRCR.net Protocol T studies |
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To help contextualize our results, the figure below shows example color retinal photographs and OCT images from both normal patients and a patient with DME who did not participate in our study. The extent of pathology seen in patients with DME is readily visible when comparing to the normal photograph.
Diabetic Macular Edema: Pathology Visible on Imaging Color Fundus Photo of a normal retina Green line indicates location of OCT cross-section below Color Fundus Photo of an eye with DME, visible edema, ischemia, lipid exudates, microaneurysms Histological section of a normal human retina OCT image of a normal human retina OCT of eye with DME demonstrating a swollen, distorted retina Optical coherence tomography (OCT) provides non-invasive, real-time, high-resolution imaging of the retina with details that match histology. It is used by retina specialists for both diagnosis of retinal disease and treatment management.
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The below figure demonstrates examples of the varying severity of DME visible on OCT imaging, again from patients with DME who did not participate in our study. In contrast to the normal OCT image, the OCT images from DME patients can demonstrate disease-related changes including intraretinal cysts, intraretinal edema, intraretinal lipid deposits, and subretinal fluid.
Diabetic Macular Edema: Pathology Visible on OCT Imaging Normal OCT Moderate DME Severe DME Very severe DME The thickness of the retina in DME is a surrogate indicator of disease severity In very severe cases, deposition of lipids is visible within the retina
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Finally, the below images demonstrate an example image from a fluorescein angiogram, or FA, another imaging tool used to assess retinal disease. These are also from patients who did not participate in our study. Visible in the images from DME patients are varying degrees of ischemia, vascular leakage, and neovascularization.
Diabetic Macular Edema: Pathology Visible on Imaging Normal fluorescein angiogram DME without ischemia Severe DME with severe ischemia Another marker of disease severity is retinal ischemia. In advanced or long standing cases, capacity for functional improvement may be limited
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The following figures present both pre- and post-treatment OCT images from DME patients who participated in our KSI-301 Phase 1 clinical study. Additionally, pre- and post-treatment vision data from each of the nine patients along with available historical data collected by the study sites are presented on each figure, along with pre-treatment color fundus photos and FA images in some cases. The post-treatment vision and OCT responses demonstrate bioactivity of KSI-301 at every dose level tested.
Date Time Treatment VA ETDRS CST Prospective 2018/7/10 Screening 22 220 2018/7/12 Day 1 KSI-301 25 261 2018/7/13 Day 2 21 244 2018/7/19 Week 1 35 150 2018/7/26 Week 2 37 148 2018/8/08 Week 4 36 150 Subject 1 - KSI-301 1.25mg Suboptimal prior response to anti-VEGF, positive response to KSI-301 Vision & Treatment History (Site Reported*): VA deterioration from 20/60 to 20/400 over a period of 11 months from August 2017 through Jul 2018 despite seven injections of bevacizumab Fundus photo and FA showing severe macular ischemia with laser scars from PRP (pre-KSI-301) OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301 Data Following Single Dose KSI-301: * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments. FA, Fluorescein angiogram. PRP, panretinal laser photocoagulation D OCT Central Subfield Thickness in microns D BCVA number of letters
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Date Time Treatment VA Snellen CST Retrospective 2018-01-25 Baseline Bevacizumab 20/60 - 2018-01-28 Day 3 20/40 - 2018-03-15 Week 7 Bevacizumab 20/100 - 2018-04-19 Month 3 Bevacizumab 20/150 - 2018-05-17 Month 4 20/350 - Date Time Treatment VA ETDRS CST 2018/7/13 Screening 55 555 Prospective 2018-07-19 Day 1 KSI-301 54 565 2018-07-20 Day 2 54 573 2018-07-26 Week 1 61 596 2018-08-03 Week 2 61 615 2018-08-17 Week 4 59 577 Subject 2 - KSI-301 1.25mg Extensive macular damage, anti-VEGF treatment failure. Safety patient. Vision & Treatment History (Site Reported*): Fundus photo showing extensive Macular Hard Exudates Data Following Single Dose KSI-301: Day 1 Pre KSI-301 Week 4 Post KSI-301 OCT Imaging * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments
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Date Time point Treatment VA Snellen CST Retrospective 2017/9/8 Baseline N/A 274 2017/11/17 Month 2 20/60 486 2018/01/19 Month 4 20/70 410 2018/02/09 Month 5 Bevacizumab 20/70 NA 2018/03/09 Month 6 20/70 208 2018/6/29 Month 9 20/70 523 Date Time Treatment VA ETDRS CST Prospective 2018/07/16 Screening 50 437 2018/7/20 Day 1 KSI-301 56 366 2018/7/21 Day 2 62 356 2018/7/27 Week 1 62 306 2018/8/3 Week 2 71 283 2018/8/17 Week 4 68 253 Subject 3 - KSI-301 1.25mg Positive response to prior anti-VEGF and response to KSI-301 Vision & Treatment History (Site Reported*): Data Following Single Dose KSI-301: * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments OCT Imaging Day 1 Pre KSI-301 Time in Days
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Date Time Treatment VA ETDRS CST Prospective 2018/7/11 Screening 45 599 2018/7/31 Day 1 KSI-301 50 574 2018/8/1 Day 2 57 542 2018/8/7 Week 1 56 568 2018/8/15 Week 2 57 540 2018/8/29 Week 4 45 624 Subject 4 - KSI-301 2.5mg Macular damage, anti-VEGF treatment failure. Safety patient. Vision & Treatment History (Site Reported*): VA deterioration from 20/63 to 20/100 over a period of 7 months from January 2018 through Jul 2018 despite 4 injections of ranibizumab and one injection of aflibercept Fundus photo showing Macular Hard Exudates Data Following Single Dose KSI-301: * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301 D OCT Central Subfield Thickness in microns
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Date Time point Treatment VA ETDRS CST Prospective 2018/7/31 Screening 36 708 2018/8/3 Day 1 KSI-301 36 722 2018/8/4 Day 2 37 700 2018/8/10 Week 1 37 681 2018/8/17 Week 2 39 591 2018/8/30 Week 4 33 595 Subject 5 - KSI-301 2.5mg Extensive macular damage, anti-VEGF and steroid treatment failure. Safety patient. Vision & Treatment History (Site Reported*): CST increase from 460 microns to 722 microns coupled with VA deterioration to 20/320 over a period of 7 months from January 2018 through Jul 2018 despite 2 bevacizumab injections and a steroid injection Fundus photo showing heavy macular laser scars Data Following Single Dose KSI-301: * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301 Time in Days
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Date Time Treatment VA ETDRS CST Prospective 2018/7/31 Screening 58 772 2018/8/8 Day 1 KSI-301 54 874 2018/8/9 Day 2 58 813 2018/8/16 Week 1 69 523 2018/8/22 Week 2 70 479 2018/9/5 Week 4 74 487 Subject 6 - KSI-301 2.5mg Treatment naive* subject with a positive response to KSI-301 Fundus photo Data Following Single Dose KSI-301: * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301
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Date Time Treatment VA Snellen CST Retrospective 2017/9/27 Baseline - 785 2017/10/05 Week 1 Bevacizumab - - 2017/11/2 Month 1 Bevacizumab - - 2017/12/7 Month 2 Bevacizumab - - 2018/2/8 Month 4 Bevacizumab - - 2018/3/1 Month 5 20/60 - 2018/3/29 Month 6 Bevacizumab 20/30 - 2018/4/26 Month 7 20/30 - 2018/5/24 Month 8 20/40 - 2018/8/6 Month 10 20/150 506 Date Time Treatment VA ETDRS CST 2018/8/14 Screening 61 686 Prospective 2018/8/16 Day 1 KSI-301 59 705 2018/8/17 Day 2 63 662 2018/8/24 Week 1 68 464 2018/8/31 Week 2 72 397 2018/9/14 Week 4 73 395 Subject 7 - KSI-301 5mg Positive response to prior anti-VEGF and positive response to KSI-301 Vision & Treatment History (Site Reported*): Data Following Single Dose KSI-301: * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301
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Date Time Treatment VA Snellen CST Retrospective 2016/12/5 Baseline Ranibizumab - 2017/01/9 Month 1 Ranibizumab - 2018/08/13 Month 20 20/100 Date Time Treatment VA ETDRS CST 2018/8/14 Screening 47 442 Prospective 2018/8/20 Day 1 KSI-301 50 437 2018/8/21 Day 2 50 414 2018/8/27 Week 1 49 419 2018/9/4 Week 2 56 397 2018/9/18 Week 4 59 363 Subject 8 - KSI-301 5mg Extensive macular damage, anti-VEGF suboptimal responder. KSI-301 responder Vision & Treatment History (Site Reported*): Fundus photo showing Macular Hard Exudates and FA showing Macular Ischemia and laser scars (PRP) (pre-KSI-301) Data Following Single Dose KSI-301: OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301 * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments FA, Fluorescein angiogram. PRP, panretinal laser photocoagulation
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Date Time point Treatment VA Snellen CST Retrospective 2017/10/10 Baseline 20/30 265 2017/11/21 Month 1 - 421 2018/1/31 Month 4 20/40 - 2018/4/24 Month 7 Bevacizumab 20/40 431 2018/6/26 Month 9 Bevacizumab 20/60 655 2018/8/7 Month 10 20/50 595 Date Time point Treatment VA ETDRS CST 2018/8/14 Screening 41 636 Prospective 2018/8/20 Day 1 KSI-301 40 635 2018/8/21 Day 2 59 620 2018/8/28 Week 1 67 358 2018/9/4 Week 2 70 344 2018/9/18 Week 4 70 355 Subject 9 - KSI-301 5mg Suboptimal prior response to anti-VEGF, positive response to KSI-301 Vision & Treatment History (Site Reported*): Date Time point Treatment VA Snellen CST Retrospective 2017/10/10 Baseline 20/30 265 2017/11/21 Month 1 - 421 2018/1/31 Month 4 20/40 - 2018/4/24 Month 7 Bevacizumab 20/40 431 2018/6/26 Month 9 Bevacizumab 20/60 655 2018/8/7 Month 10 20/50 595 Fundus photo Data Following Single Dose KSI-301: Date Time point Treatment VA ETDRS CST 2018/8/14 Screening 41 636 Prospective 2018/8/20 Day 1 KSI-301 40 635 2018/8/21 Day 2 59 620 2018/8/28 Week 1 67 358 2018/9/4 Week 2 70 344 2018/9/18 Week 4 70 355 * Sites asked to enter DME treatment history since Jan 1, 2018, or as available to them; thus, may not necessarily reflect all of a patients prior DME treatments OCT Imaging Day 1 Pre KSI-301 Week 4 Post KSI-301
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The best response from each dose level is shown in the figure below. The post-treatment vision and OCT responses demonstrate bioactivity at every dose level tested.
Our Phase 1 study demonstrated safety and bioactivity for KSI-301 and a preliminary proof of concept for KSI-301 and the ABC Platform. The Phase 1 objective was achieved, and KSI-301 was shown to be safe and well-tolerated at all three dose levels at the 14-day primary endpoint and through the 30-day follow-up visit for all subjects. No dose limiting toxicities, inflammation, or severe adverse events were observed. No maximum tolerated dose was defined as every dose level was well tolerated. Bioactivity was demonstrated at all dose levels and across a range of patient phenotypes. A pharmacodynamic effect was observed with reductions in macular edema on OCT imaging. An efficacy effect was observed with improvement in best corrected visual acuity.
KSI-301 Planned Phase 1b and Phase 2 Clinical Studies
Having successfully met the primary endpoint of safety and tolerability in the Phase 1 study, with the additional observations around bioactivity, we plan to further evaluate the highest dose tested of KSI-301, 5 mg, in a series of global studies in wet AMD and DME/DR.
We expect to be dosing patients in a global Phase 2 study of KSI-301 in the United States in early 2019, and clinical trial applications to ex-U.S. regulatory authorities for this study are in progress. This randomized, controlled study in approximately 400 treatment naïve wet AMD patients will evaluate the non-inferiority of intravitreal KSI-301 administered as infrequently as every 16 weeks versus EYLEA (aflibercept) administered on its every 8-week labeled regimen (after three loading doses). FDA has indicated that this Phase 2 study, if successful, can be supportive of a marketing application for KSI-301 as one of two pivotal studies in wet AMD required for approval in the United States.
We also plan to initiate a Phase 2 randomized controlled clinical study of KSI-301 in DME/DR patients in the U.S. and E.U. We also expect this study to evaluate the non-inferiority of KSI-301 administered on an every 12 week or less frequent dosing schedule versus EYLEA administered on its every 8-week (labeled) regimen (after five loading doses). We plan to initiate dosing in this study by the end of 2019.
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We additionally plan to initiate two Phase 2 studies in China, one in wet AMD and one in DR, and we are planning for these studies to have the same clinical design frameworks as our U.S./EU studies. We plan to file the IND in China in the first half of 2019 and initiate dosing in the second half of 2019.
In parallel to initiating our Phase 2 studies, we intend to expand the scope of the Phase 1 study into a Phase 1b open label study to evaluate the treatment effect and safety of sequential doses of KSI-301 in approximately 30 to 45 patients with wet AMD, DME/DR and macular edema due to retinal vein occlusion, or RVO, another important but less-common retinal vascular disease for which both EYLEA and Lucentis are FDA-approved. In the Phase 1b study, we intend to conduct more intensive ophthalmic imaging and ocular pharmacokinetic assessments over the 36-week treatment duration to define the profile of KSI-301 in the context of existing and emerging data in the field.
Our Strategy
Our goal is to become a leading biopharmaceutical company focused on developing and commercializing therapeutics for the treatment of ophthalmic diseases. The key elements of our strategy are:
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Complete clinical development of KSI-301 for wet AMD and DR . We are devoting a significant portion of our resources and business efforts to the clinical development of KSI-301 for wet AMD and DR. We anticipate initiating a Phase 2 wet AMD study of KSI-301 in the U.S. and EU in early 2019 to evaluate the non-inferiority of intravitreal KSI-301 administered as infrequently as every 16-weeks versus EYLEA. The FDA has indicated this study, KSI-CL-102, if successful, can be supportive of a marketing application for KSI-301. We are thus designing and intend to execute this Phase 2 study as a pivotal study. We also plan to initiate a Phase 2 clinical trial of KSI-301 in the U.S. and EU in DR patients. We also plan to initiate two Phase 2 studies in China, one in wet AMD and one in DR, and we are planning for these studies to have the same clinical design frameworks as our U.S. and EU studies. We plan to perform an administrative interim analysis of our Phase 2 data after approximately 200 patients (100 on KSI-301 and 100 on EYLEA) have been treated for approximately 6 months, to evaluate both the comparative vision outcomes at that point for KSI-301 and EYLEA as well as the KSI-301 Q16W (once every 16 weeks)/Q12W (once every 12 weeks) durability proportion. We expect to undertake this administrative interim analysis in our China Phase 2 studies but plan to include the potential for this interim analysis in our global Phase 2 wet AMD protocol as well. We may use the results of this interim analysis to inform future activities related to KSI-301. In parallel to our Phase 2 programs, we are expanding the scope of our Phase 1 study into a Phase 1b open label design to evaluate the safety and treatment effect of sequential doses of KSI-301 in patients with wet AMD and DR. |
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Establish market acceptance of KSI-301 in wet AMD and DR . We believe that if KSI-301 is approved and is shown to have comparable efficacy and improved durability to other anti-VEGF therapies, it will compete favorably with other marketed products for wet AMD and DR. In addition, we believe KSI-301 may potentially expand the market reach to patients not currently on approved standard of care therapies or not currently on therapy at all. |
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Seek to expand the use of KSI-301 in DR beyond DME . We intend to explore the use of KSI-301 in the treatment of all subtypes of DR patients. Currently marketed anti-VEGFs are used primarily to treat late and advanced manifestations of DR, particularly DME. We believe that the improved durability of KSI-301 has the potential to not only improve the standard of care but also expand the patient population that receives anti-VEGF therapy to include patients with less severe forms of DR for whom frequent injections may be a barrier to adoption. |
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Commercialize KSI-301 with our own specialty sales force . KSI-301 is wholly-owned by us. If KSI-301 receives marketing approval, we plan to commercialize it in the United States with our own focused, specialty sales force. We believe that retinal specialists in the United States, who perform most of the medical procedures involving retinal diseases, are sufficiently concentrated that we will be able to effectively promote KSI-301 with a sales and marketing group of fewer than 200 people. We expect to explore collaboration, distribution or other marketing arrangements with one or more third parties to commercialize KSI-301 in markets outside the United States. |
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Advance the development of our other ABC product candidates . We intend to continue deploying capital to selectively develop our own portfolio of product candidates based on our ABC Platform (including bispecific inhibitors such as KSI-501). We may partner with biotechnology and pharmaceutical companies to further develop our ABC Platform and product candidates. |
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Discover and develop future product candidates for areas of unmet need. We intend to continue our discovery efforts and deepen our pipeline of medicines for high prevalence ophthalmic diseases. We may opportunistically in-license or acquire the rights to complementary products, other product candidates and technologies to aid in the treatment of a range of ophthalmic diseases, principally diseases of the retina. |
Market Opportunity
Wet AMD
Overview of Wet AMD
AMD is a common eye condition affecting people of age 55 years and older with a reported prevalence of approximately 11 million people in the United States and 170 million people globally. It is a progressive disease affecting the central portion of the retina, known as the macula, which is the region of the eye responsible for sharp, central vision and color perception. The likelihood of AMD progression and associated vision loss increases with age.
Wet AMD is an advanced form of AMD characterized by neovascularization and fluid leakage under the retina. It is the leading cause of severe vision loss in patients over the age of 50 in the United States and the EU, with a reported prevalence of approximately 1.25 million people and an annual incidence of approximately 200,000 people in the United States. The likelihood of disease progression increases with age, so the prevalence and incidence of wet AMD is projected to accelerate in countries with aging populations. It has additionally been observed that approximately 50% of patients presenting with wet AMD in one eye will develop wet AMD in the other eye within five years, leading to a relatively significant number of patients requiring treatment in both eyes. While wet AMD represents only 10% of the number of cases of AMD overall, it is responsible for 90% of AMD-related severe vision loss. In many eyes with wet AMD, the disease can progress quickly with rapid loss of central vision needed for activities such as reading and driving. Untreated or undertreated wet AMD results in blood vessel leakage, fluid in the macula, and ultimately scar tissue formation, which can lead to permanent vision loss, or even blindness, as a result of the scarring and retinal deformation that occur during periods of non-treatment or undertreatment.
Current Therapies for Wet AMD
The standard of care treatments for wet AMD are two anti-VEGF drugs, Lucentis (ranibizumab) and EYLEA (aflibercept). Lucentis (ranibizumab), marketed by Genentech, Inc., a subsidiary of the Roche Group, in the United States and by Novartis AG outside the United States, is a recombinant humanized monoclonal antibody fragment that binds to and inhibits VEGF proteins in the eye and was approved in the United States in 2006 and in Europe in 2007. EYLEA (aflibercept), marketed by Regeneron Pharmaceuticals, Inc. in the United States and by Bayer HealthCare LLC outside the United States, is a recombinant fusion protein containing portions of the human VEGF receptor that binds to soluble VEGF and was approved in the United States in 2011 and in Europe in 2012. These drugs became the standard of care for treating wet AMD based on pivotal clinical trials in which Lucentis was injected every four weeks and EYLEA was injected every eight weeks (after three initial monthly loading doses). Since its approval, EYLEA has been widely adopted largely due to a durability advantage compared to Lucentis, but both agents were effective in improving visual acuity in the first months of the treatment period and sustaining this gain throughout the duration of their respective clinical trials. Avastin (bevacizumab), marketed for non-ocular indications by Genentech in the United States and by Roche outside of the United States, is an anti-VEGF cancer therapy that shares structural characteristics with Lucentis and is commonly used off-label as a monthly, intravitreal injection for wet AMD.
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Total Market for Wet AMD
Annual worldwide sales of Lucentis and EYLEA for all indications totaled approximately $9.6 billion in 2017. We believe a substantial majority of these sales were in connection with the treatment of wet AMD and DR. Avastin, which is currently approved and marketed for the treatment of cancer, is also used off-label to treat wet AMD and DR. We estimate that off-label Avastin represents approximately 60% of the U.S. wet AMD market by volume. We believe that an improved anti-VEGF therapy could further increase both adoption of approved therapies and extend the duration patients remain on treatment, and thus the total addressable market opportunity in wet AMD and DR could be substantial.
With an improved anti-VEGF therapy, we believe the total addressable market opportunity in wet AMD could be substantially greater than sales of Lucentis and EYLEA in wet AMD and DR. A clinically meaningful durability advantage over existing treatments could increase long-term compliance rates and maintain patients on a consistent and FDA approved treatment regimen for this chronic condition. Furthermore, we believe that an anti-VEGF therapy that is more durable than Avastin may reduce the relative weight of cost as a deciding factor for patients and providers who currently favor Avastin and expand the market for branded treatments.
Diabetic Retinopathy
Overview of Diabetic Retinopathy
DR is an eye disease resulting from diabetes, in which chronically elevated blood sugar levels cause damage to blood vessels in the retina. There are two major types of DR:
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Non-proliferative DR, or NPDR . NPDR is an earlier, more typical stage of DR and can progress into more severe forms of DR over time if untreated and if exposure to elevated blood sugar levels persists. |
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Proliferative DR, or PDR . PDR is a more advanced stage of DR than NPDR. It is characterized by retinal neovascularization and, if left untreated, leads to permanent damage and blindness. |
DME, which occurs when fluid accumulates in the macula due to leaking blood vessels, can develop at any stage of DR. PDR, together with DME, are the primary causes of vision-threatening DR, or VTDR. VTDR is the leading cause of blindness among people with diabetes and the leading cause of blindness among working age adults in the United States and the EU. Patients with mild or moderate NPDR who have not developed DME are characterized as patients with non-vision threatening DR, or NVTDR.
Current Therapies for DR
PDR has historically been treated with laser therapy. In recent years, use of anti-VEGF therapies has emerged as a complementary first-line treatment for PDR. Lucentis and EYLEA are also approved for the treatment of DME with or without PDR. In April 2017, Lucentis approval was expanded to include all forms of DR, whether or not the patient also has DME. The approval was based on the demonstration that treatment with Lucentis results in more patients experiencing improvement of their diabetic retinopathy severity (disease regression). In March 2018, Regeneron announced results from its ongoing study in which EYLEA demonstrated it can reverse disease progression in patients with moderately severe to severe NPDR when administered on average 4.4 times over 24 weeks.
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The first-line interventions for NVTDR are observation, lifestyle changes and treatment of underlying diabetes. In practice, anti-VEGF therapies are not commonly prescribed for patients with NVTDR. However, results from the RISE and RIDE trials for Lucentis showed that anti-VEGF therapies can slow disease progression in patients with NPDR as well as induce regression.
Figure: Time to disease worsening (DR progression as defined by a composite endpoint)
from baseline in DME patients with NPDR treated with sham procedures vs. Lucentis.
Figure: Proportion of subjects improving or worsening per treatment arm.
Total Market for DR
According to the Center for Disease Control, or CDC, and National Institutes of Health, or NIH, (1) an estimated 30 million people in the United States have diabetes, with approximately 1.5 million additional people in the United States diagnosed with diabetes each year, and (2) 285 million people worldwide have diabetes. We estimate that the number of people in the United States and the EU with DR in 2015 was approximately 28.5 million. According to the NIH, the number of Americans with DR is expected to nearly double from 2010 to 2050. The CDC estimates that approximately 900,000 Americans are affected by VTDR. We believe a substantial majority of the $9.6 billion in sales of Lucentis and EYLEA in 2017 were for the treatment of wet AMD and DR. Furthermore, we believe that the frequent injections required by current anti-VEGF therapies may dissuade patients with mild or asymptomatic forms of DR from accepting treatment. A more durable agent such as KSI-301 could be attractive for these untreated patients and extend the anti-VEGF market to include patients with NVTDR.
Limitations of Current Anti-VEGF Therapies
The underlying pathophysiology of both wet AMD and DR are responsive to anti-VEGF drugs. Both conditions suffer from the limitations of current anti-VEGF therapies such as limited on-mechanism durability and frequent dosing intervals. On-mechanism durability is a function of the time that therapeutic levels are
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sustained in the ocular tissues. Data suggest that the effectiveness of Lucentis and EYLEA in clinical practice is inferior to the results seen in well-controlled clinical studies, an observation attributed to insufficiently frequent dosing and resulting undertreatment even, in the case of EYLEA, with its labeled eight-week regimen. Other studies show that while patients may benefit from anti-VEGF therapies in the early treatment phase, they may fail to sustain their visual acuity gains over the long term. Clinical studies have also shown that non-treatment or undertreatment with anti-VEGF agents in the months or years after disease onset may reduce the benefit of anti-VEGF therapies once therapy is initiated. These factors contribute to permanent and unnecessary vision loss for many patients.
Existing anti-VEGF therapies block VEGF activity effectively but have limited durability.
Wet AMD and DR are chronic and progressive diseases that require protracted treatment, possibly for life. Currently available anti-VEGF agents have relatively short durability. To maintain effective drug levels in the eye, existing anti-VEGF treatments must be administered on a frequent and sustained schedule. Lucentis was approved based on a monthly dosing interval. EYLEA was approved based on a dosing interval of every eight weeks (following three initial, monthly loading doses). The most accepted sign of disease activity in wet AMD for retina specialists worldwide is recurrent accumulation of fluid in the macula, as determined by evaluating the retinal thickness and anatomic appearance with OCT. As can be seen in the figure below, when EYLEA or Lucentis are dosed on a Q4W (once every four weeks) regimen, the retinal thickness remains stable between doses, as measured on OCT. However, when EYLEA dosing is shifted to its Q8W (once every eight weeks) labeled regimen, the retina expands and contracts as it begins to swell with fluid before its next retreatment, exhibiting a seesaw pattern that we refer to as OCT flutter. This suggests that, although vision outcomes are comparable on average between fixed-interval 4-weekly and 8-weekly dosing, EYLEAs durability and ability to maintain disease control as measured by OCT is less than the approved 8-week per-label dosing.
Figure: Retinal thickness (y-axis), measured in nanometers, decreases upon treatment with EYLEA. Rq4 = Lucentis every four weeks; 0.5q4 = EYLEA 0.5mg every four weeks; 2q4 = EYLEA 2mg every four weeks; 2q8 = EYLEA 2mg every eight weeks.
The clinical implication is that when a patients dosing cycle is extended beyond the durability of the anti-VEGF agent and the amount of drug remaining in the eye falls below therapeutic levels, disease activity can recur. At this point, the disease can progress and begin to cause cumulative and possibly permanent retinal damage. To this point, the EYLEA product labeling in the United States notes that some patients may need every 4-week (monthly) dosing after the first 12 weeks (3 months).
Additional evidence of the recognition of limited durability is seen in the FDAs evaluation of both Lucentis and EYLEA. Lucentis was tested for its potential to reach quarterly dosing in a Phase 3b study; it failed to successfully deliver the same efficacy results as monthly dosing. The FDA did accept dosing every three months after three initial monthly loading doses in the Lucentis product labeling, with the following wording: Although not as effective, patients may be treated with 3 monthly doses followed by less frequent dosing with regular assessment. In the 9 months after three initial monthly doses, less frequent dosing with 4-5 doses on average is expected to maintain visual acuity while monthly dosing may be expected to result in an additional average 1-2 letter gain. Patients should be assessed regularly. The loss of one line of vision translates into patients going back to baseline or even losing vision at the end of the first year of treatment, on average. Furthermore, the required wording of regular assessments means that the high burden of frequent office visits remains. For EYLEA, recently, the FDA updated the product labeling to allow 12-week dosing but only in the second year of
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treatment, after one full year of intensive treatment. The labeling refers to it as not as effective as the recommended every 8-week dosing. For both Lucentis and EYLEA, the recommended fixed interval dosing of monthly and bimonthly, respectively, appear to result in the best and most consistent visual acuity results, with all flexible or less-frequent dosing intervals labeled by FDA as not as effective.
Real-world utilization of current anti-VEGF therapies results in undertreatment which diminishes effectiveness.
Extended treatment intervals caused by the burden of frequent treatments causes undertreatment and visual outcomes that fall short of the results seen in pivotal clinical trials.
Compared to Lucentis pivotal trials in wet AMD, ANCHOR and MARINA, where initial vision gains are maintained with monthly dosing over two years, a variety of studies have shown that the initial gains (if achieved) are not maintained, on average, after the initial loading phase.
This is clearly seen in AURA, a multi-country real-world practice study of Lucentis. The visual acuity improvement seen in AURA falls significantly short of the visual acuity improvement that patients showed in MARINA and ANCHOR. A gradual loss of the initial vision gains can be seen as early as three months after initiation of treatment as depicted in the graph below. A key finding in AURA is that populations that received less frequent anti-VEGF treatment tended to experience less improvement in visual acuity, on average, as illustrated in the table below.
Figure: Vision gains seen in the AURA study over time for all patients by country (adapted from Holz et al).
*Last observation carried forward analysis.
Country |
N |
Mean
injections in full 2 years |
Change in VA
score to day 90* |
Change in VA
score to year 1* |
Change in
VA score to year 2* |
Mean VA
score at year 2* |
||||||||||||||||||
UK |
410 | 9.0 | 5.7 | 6.0 | 4.1 | 59.0 | ||||||||||||||||||
The Netherlands |
350 | 8.7 | 4.6 | 3.8 | 2.6 | 52.4 | ||||||||||||||||||
France |
398 | 6.3 | 4.1 | 0.8 | -1.1 | 54.4 | ||||||||||||||||||
Germany |
420 | 5.6 | 3.3 | 1.1 | -0.8 | 51.9 | ||||||||||||||||||
Italy |
365 | 5.2 | 1.4 | 0 | -2.9 | 62.7 |
Table: Summary of changes in visual acuity (VA) score from baseline and number of injections over two years, per country.
*Last observation carried forward analysis.
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Consistent with the AURA study, an observational study following patients who completed the SEVEN UP and HORIZON trials for Lucentis in wet AMD showed a correlation between the number of injections and level of visual acuity benefit. Patients who received 11 or more injections during the period from four to eight years after they exited the pivotal clinical trial were more likely to experience improved vision (average gain of 3.9 letters) than patients who received six to ten injections during the same period (average loss of 6.9 letters).
No
injections (n=26) |
1-5
injections (n=11) |
6-10
injections (n=11) |
³
11
injections (n=14) |
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Letter change: |
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SEVEN UP vs HORIZON exit |
-8.7 | -10.8 | -6.9 | +3.9 | 1 |
1 |
p <0.05 |
Table: Mean letter change from HORIZON to SEVEN UP by total number of anti-VEGF treatments.
The implication of these data is that in clinical practice and outside of clinical studies, patients are receiving fewer injections than the labeled regimens for Lucentis (12 per year) and EYLEA (seven to eight in the first year and six in subsequent years). In 2017, the Angiogenesis Foundation reported that in routine clinical practice, 65% of wet AMD patients receive six or fewer injections during the first year of treatment. Likewise, a recent publication from the American Academy of Ophthalmologys IRIS (Intelligent Research In Sight) patient registry showed that, in 13,859 U.S. patients with wet AMD, the average number of injections in the first year of treatment was approximately six.
As illustrated in the top right of the figure below, data regarding long-term anti-VEGF treatment show that visual acuity outcomes are positively correlated with number of injections, with the greatest benefit seen when therapies are used at 10.5 or more injections per year reflecting high intensity, fixed Q4W or Q8W dosing.
Figure: Five-year visual acuity outcomes versus injection frequency for three or more years in AMD.
In real-world practice, even a small deviation from per-labeled dosing can result in significant vision loss. In the PERSEUS Study, the real-world effectiveness of EYLEA was evaluated in patients treated per-label (regular treatment) compared to patients treated irregularly. Patients treated regularly received a mean of 7.4 injections compared to 5.2 in the irregular treatment group. The initial vision gains seen after the loading doses started to
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decrease at month four, with vision returning, on average, to almost baseline in the irregularly treated patients, as shown in the graph below. The difference in vision of 4.6 letters gained between the two groups is statistically significant, and, more importantly represents almost a line (five eye chart letters) of vision difference on average, which is recognized in the field as clinically meaningful. Additionally, in this study, the majority of patients (70.5%) did not receive regular treatment.
Figure: mean change in visual acuity for regularly and irregularly treated patients in the PERSEUS Study (effectiveness set)
Real-world outcomes of anti-VEGF treatment in patients with DME show similar patterns to wet AMD. For instance, a recently published report of electronic health records real-world data from 15,608 DME patient eyes showed that patients on average receive fewer injections over 12 months and have meaningfully worse visual acuity outcomes compared to randomized controlled trials.
Patients are not sustaining visual acuity gains over the long term.
Patients treated with anti-VEGF agents can sustain visual acuity gains over time if they adhere to a tighter dose frequency. Results from the VIEW 1 extension study demonstrate that it is possible for patients treated with anti-VEGF agents to sustain visual acuity gains over time, as long as patients adhere to a tighter dose frequency that is closer to the labeled regimen. In the early intensive treatment phase, patients in VIEW 1 achieved a ten-letter visual acuity gain, which they then maintained over two years on a Q8W regimen. At the end of two years, patients shifted into a less-intensive clinical monitoring regimen and into a more flexible dosing regimen in which they were required to maintain at least Q12W dosing. In this hybrid setting, patients showed a slow but steady decrease in average visual acuity from ten letters to seven letters; however, their average visual acuity did not drop to pretreatment levels or below.
Figure: Mean visual acuity and 95% confidence interval for 647 patients in the Comparison of Age-Related
Macular Degeneration Treatments Trials Follow-up Study: (A) overall and by drug assigned in the clinical
trial and (B) overall and by dosing regimen assigned in the clinical trial. PRN = as needed.
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As mentioned above, AURA and many other real-world practice studies show that the vision gains seen in tightly controlled clinical trials are not transferrable to clinical practice. A United Kingdom study of approximately 93,000 Lucentis injections reviewed EMRs of thousands of patients treated outside the context of clinical trials. On average, patients received a median of 5, 4, and 4 injections of Lucentis over years one, two and three, respectively. The study found that although patients showed early improvement, they regressed, on average, to pretreatment levels by the end of year two with continued deterioration below their starting visual acuity by year three, as shown in the chart below.
Figure: Mean visual acuity (VA), as measured by letter score, over time comparing patients with follow-up of at least 1, 2 or 3 years.
More importantly, with many patients losing vision, during the study follow-up many patients experienced new sight impairment (29.6%, 41%, 48.7% and 53.7% in years one, two, three and four, respectively) and even new cases of blindness (5.1%, 8.6%, 12% and 15.6% in years one through four, respectively).
In the United States, an EMR study of 7,650 eyes treated with Lucentis and EYLEA outside of the clinical trial setting showed that these therapies improved patients visual acuity less in practice than they do in clinical trials. Further, by the end of the first year of treatment, patients average visual acuity had deteriorated below their pretreatment levels.
Figure: Mean change in visual acuity (VA) letter score at 3, 6 and 12 months in the first year of treatment.
VA was lower at 12 months than at the beginning of treatment.
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When patients leave the tightly controlled clinical trial environment, their eyesight, on average, falls to pretreatment levels. In practice, anti-VEGF therapies are not delivering the level of benefit that their pivotal clinical trials suggested. In the pivotal Lucentis trials MARINA and ANCHOR, patients were able to gain and maintain vision gains with monthly dosing over two years. After exiting the clinical trials, patients were followed in the HORIZON study with as needed dosing (Pro Re Nata or PRN) for three more years. Gradual vision decline can be seen immediately after exiting the trials, returning to pre-treatment baseline vision before the end of the third year of follow-up in HORIZON.
Figure: Mean change in visual acuity (VA) letter score in MARINA and ANCHOR
(years one and two) and in HORIZON (years three to five).
VA gradually decreased immediately after the patients exited monthly dosing in a clinical trial setting.
A study funded by the National Eye Institute followed patients who left the tightly controlled clinical trial environment into clinical practice and showed that these patients, on average, lost all the gains in visual acuity that they obtained while enrolled in the trial.
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Undertreatment in the early course of patients disease risks the patients ability to benefit from anti-VEGF therapies after the passage of time.
After disease onset, how soon patients receive appropriate treatment is important to whether they can respond to treatment. Failure to appropriately treat neovascularization in the early period may reduce patients ability to respond to anti-VEGF therapies as the disease progresses, possibly leading to irreversible damage. In the RIDE/RISE clinical studies of Lucentis in DR, patients who received Lucentis saw an increase in visual acuity of 10 to 12 letters at month 24. Patients who received sham treatment (a procedure that is intended to mimic a therapy in a clinical trial as closely as possible without having any actual efficacy) for 24 months saw no benefit. At the 24-month mark, the patient arms were crossed over, such that the patients who had initially received sham treatment now began to receive Lucentis. These patients were only able to improve by four letters by year three. The interpretation is that the unchecked disease progression in the initial period damaged the retina to such an extent that patients were subsequently unable to respond to Lucentis to the same degree as patients treated with Lucentis earlier in their disease process.
Figure: At 36 months, patients who received Lucentis 0.5mg experienced a mean BCVA change from
baseline of 11.4 letters and 11.0 letters in RIDE and RISE, respectively. Patients who received sham treatment for
24 months and then crossed over to Lucentis 0.5mg experienced a diminished benefit in mean best corrected visual
acuity change from baseline at 36 months of 4.7 letters and 4.3 letters in RIDE and RISE, respectively.
Conclusions
There is a significant and urgent unmet medical need to find better therapeutic options for patients with neovascular diseases of the retina that can:
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keep patients on mechanism for longer than currently available anti-VEGF therapies, thereby preventing repeated undertreatment by overextending treatment intervals and thus avoiding latent recurrence of retinal edema; |
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match the required frequency of injections to keep the patients disease quiescent with the frequency of visits that patient and physician behavior suggest is achievable in practice; |
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sustain the strong visual acuity gains of the early intensive treatment phase over the long term and outside of clinical trial contexts; and |
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provide a tolerable treatment regimen even for patients who are early in the course of their disease, so they can achieve the maximal benefit of anti-VEGF therapy. |
In the 2018 Preferences and Trends Survey conducted by the American Society of Retina Specialists, retina specialists worldwide cited both reduced treatment burden and long-acting durability as the greatest unmet needs regarding wet AMD treatment.
Our Lead Product Candidate: KSI-301
Our lead product candidate, KSI-301, is a novel, clinical stage anti-VEGF biological agent that combines inhibition of a known pathway with a potentially superior on-mechanism durability profile compared to currently marketed drugs for wet AMD and DR. By addressing the primary causes of undertreatment, KSI-301 has the potential to improve and sustain visual acuity outcomes in patients with neovascular conditions of the retina such as wet AMD and DR.
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Components of KSI-301
KSI-301 is a bioconjugate comprised of two novel components. The first component is a recombinant, full-length humanized anti-VEGF monoclonal antibody. The second component is a branched, optically clear phosphorylcholine biopolymer. The antibody is conjugated to the biopolymer in a one-to-one ratio through a stable and site-specific chemical linkage to form the antibody biopolymer conjugate. The molecular weight of KSI-301 is approximately 950,000 Daltons (Dalton is a standard measure of molecular weight), of which approximately 150,000 Daltons are attributable to the antibody component and 800,000 Daltons are attributable to the biopolymer component. It is well-established that substances, when injected intravitreally, with a smaller molecular weight will be cleared from ocular tissues more quickly than larger substances.
Figure: Functional structure of the KSI-301 antibody biopolymer conjugate. CH constant heavy, CL constant light, VH variable heavy, VL variable light, « Complementarity Determining Regions (CDR).
Antibody Intermediate
The antibody intermediate of KSI-301 consists of a humanized anti-VEGF antibody. KSI-301 behaves pharmacologically similar to Lucentis by inhibiting VEGF-mediated neovascularization and vascular permeability.
Biopolymer Intermediate
The biopolymer component is a branched, optically clear phosphorylcholine biopolymer. Phosphorylcholine is a naturally occurring phospholipid head group present on the external surface of mammalian cellular membranes. Phosphorylcholine demonstrates physiological inertness that has been attributed to its molecular structure, where a permanent positive charge on the nitrogen group is equally balanced by a negative charge on the phosphate, yielding a net neutral charge over a wide range of conditions. Because of these biophysical properties, phosphorylcholine-based materials demonstrate super-hydrophilic properties in which they bind large amounts of water molecules very tightly, to create what we call structured water. Phosphorylcholine is used successfully in marketed medical materials as the key water control monomer, in particular as a hydrogel in certain contact lenses and as a polymeric surface coating in certain cardiac drug-eluting stents. In these applications, phosphorylcholine containing monomers are polymerized via uncontrolled free radical polymerization. For an external hydrogel application (contact lens) and an internal surface coating application (drug eluting stent), control of molecular weight and architecture are not important performance attributes. Kodiaks objective was to incorporate phosphorylcholine into well-controlled biomaterials to use as conjugates for soluble, injectable medicines such as biopharmaceuticals. In such an application, control of molecular weight and architecture are important manufacturing and performance parameters. Therefore, we used controlled living polymerization techniques to build precise, star-shaped, high molecular weight, well-characterized phosphorylcholine-based biopolymers that preserve functional chemistry for subsequent conjugation to biologically active proteins and, once conjugated, bring a highly structured water environment into close
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proximity with the bioactive antibodys target binding regions. We are also applying these controlled living polymerization techniques to develop phosphorylcholine-based biopolymers as copolymers of phosphorylcholine-containing and drug-containing comonomers to build chemistry-based product candidates that we believe may demonstrate high biocompatibility, high drug loading and sustained release of small molecule drugs for ophthalmology applications.
Characteristics of KSI-301
We believe that KSI-301 can be a highly differentiated treatment with an improved durability and bioavailability profile compared to current anti-VEGF therapies due to the following design features and resulting performance benefits we have observed with KSI-301 in our preclinical development:
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Design feature: KSI-301s ultra-high molecular weight of 950,000 Daltons as compared to 115,000 for EYLEA, 48,000 for Lucentis and 27,000 for brolucizumab |
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Associated performance benefits: |
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3x improvement in key ocular pharmacokinetic parameters of KSI-301, as compared to the standard of care anti-VEGF agents |
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>100x ocular concentration advantage at two months post-dosing of KSI-301, as compared to the standard of care anti-VEGF agents |
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Design feature: KSI-301s phosphorylcholine-based ABC Platform |
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Associated performance benefits: |
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4x increase in key target ocular tissue bioavailability, as compared to EYLEA |
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Same or increased bioactivity, as compared to the standard of care anti-VEGF agents |
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Increased stability and resistance to degradation of bioconjugates compared to therapeutic proteins |
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Design feature: KSI-301s increased formulation strength of 50 mg/mL as compared to 40 mg/mL for EYLEA and 10 mg/mL for Lucentis, as measured by weight of protein moiety |
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Associated performance benefits: |
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3.5x and 7x higher number of anti-VEGF binding sites per dose, as compared with EYLEA and Lucentis, respectively |
We believe that the aggregated effects of these properties will afford KSI-301 a longer on-mechanism durability that will more closely match the frequency of physician visits that is realistic for patients in clinical practice.
We also believe that these properties along with KSI-301s delivery by intravitreal injection position it favorably compared to other therapies being studied in the clinic with the aim of long-interval dosing in wet AMD and DR. For example, both gene therapy and an implantable drug reservoir require the patient to undergo surgery, which is generally riskier than an intravitreal injection. This need for surgery may reduce the likelihood that those technologies could be useful for or adopted by a broad range of physicians and patients, especially those patients with earlier-stage disease. An implantable drug reservoir also leaves a foreign body permanently in the eye, with an attendant increased risk of infection. Coated microsphere drug depots that deliver small-molecule receptor tyrosine kinase inhibitor drugs into the eye may leave a foreign residual material, which may cause visual symptoms and/or other safety problems. Additionally, receptor tyrosine kinase inhibitor drugs affect signaling through additional receptors other than VEGF receptor; the effects on the eye of this additional receptor inhibition, either good or bad, are not yet known. Finally, bispecific antibodies that target VEGF as well as other angiogenic signaling pathways are attempting to increase durability of treatment effect through targeting of yet-unvalidated biologic pathways, but the antibodies being used are the same size as typical monoclonal antibodies (~150 kDa) and we believe they do not have any unique size or half-life extending properties.
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Trajectories in Field of Medicines Development for Retinal (Intravitreal) Therapies
Since the initial FDA approval of Lucentis in 2006 as a monthly therapy for wet AMD, efforts have been made to improve the durability of intravitreal anti-VEGF therapy. Primarily, two parameters have been varied: size of molecule and amount of injected dose. First, increasing molecular weight, which can increase durability or ocular pharmacokinetics, or PK, in the eye because a larger molecule can lead to a slower exit from the eye. For example, Lucentis has a molecular weight of 48 kDa whereas EYLEA, approved in 2011, has a molecular weight of 115 kDa. The second parameter is increasing the formulation strength (concentration) to increase the effective dose of anti-VEGF, given the limited volume of medicine that can be injected intravitreally in a single administration. This increases effective durability by keeping drug concentrations in the eye above a minimal threshold for longer periods of time. For example, EYLEA has a 2x molar equivalence to Lucentis. In designing KSI-301, we addressed both parameters: first, increasing the molecular weight to 950 kDa through our ABC approach, and second, increasing the molar strength through a high concentration formulation of 50 mg/mL (by weight of protein). Of note, some recently developed therapeutic candidates have leveraged one parameter at the expense of the other. For example, brolucizimab was tested in Phase 3 (data available in 2017) at a high concentration and thus high injected dose level, giving it a high molar strength (22x of Lucentis), but with a molecular weight of only 27 kDa the duration of each molecule in the eye is less than that of Lucentis. Clinically, the Phase 3 result was that roughly half of patients were able to be maintained on 12 week dosing, and the remainder required 8 week (or more frequent) dosing. We believe our design decisions for KSI-301 may provide increased durability. The following figure illustrates these concepts.
scFv single chain fragment variable CH constant heavy, CL constant light, Fab fragment antigen-binding, Fc fragment crystallizable, VEGFR vascular endothelial growth factor receptor, VH variable heavy, VL variable light, CDR regions. PK pharmacokinetics. Equivalent values are showed as fold changes relative to Lucentis.
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Affinity for and Inhibition of VEGF
The therapeutic activity of KSI-301 is driven by its antibody component, OG1950, which (1) binds to VEGF and (2) prevents VEGF from carrying out its functions that promote neovascularization and increase vascular permeability. Our preclinical tests have demonstrated that OG1950 and KSI-301 bind to VEGF with similar affinity, which indicates that, despite the size and complex architecture of the biopolymer intermediate, the biopolymer does not interfere with antibody binding.
Table: Binding kinetics of OG1950 and KSI-301 to huVEGF-A165 by SPR or KinExA analysis.
Molecule |
Platform (°C) |
K on (M) |
K off (M) |
K
D
(pM) |
||||||||
OG1950 |
Biacore(25°) | 5.31x10 | 6 | 4.48x10 -5 | 9.02 | |||||||
KinExA(37°) | 5.09x10 | 5 | 1.75x10 -6 | 3.43 | ||||||||
KSI-301 |
Biacore(25°) | 3.19x10 | 6 | 5.33x10 -5 | 17.0 | |||||||
KinExA(37°) | 2.69x10 | 5 | 1.82x10 -6 | 6.75 |
°C = degrees Celsius; K D = dissociation constant
We have also tested OG1950 and KSI-301 in vitro alongside other anti-VEGF biologics to test their respective abilities to inhibit VEGF from binding to VEGF receptors. As shown in the figure and table below, while KSI-301 and OG1950 have similar IC50 (the concentration at which binding is reduced by half) compared to EYLEA, KSI-301 consistently demonstrates a higher maximal inhibition than EYLEA or Lucentis. Of note, KSI-301 improved maximal inhibition more than OG1950, suggesting that the special nature of our antibody biopolymer conjugate synergistically improves the bioactivity of the antibody intermediate acting alone.
Figure: Inhibition of VEGF binding to VEGF receptors by anti-VEGF agents.
Molecule |
IC 50 (nM) |
Maximal
inhibition (%) |
||||||
KSI-301 |
3.72±0.74 | 93.89±1.41 | ||||||
OG1950 |
3.97±1.19 | 83.72±3.13 | ||||||
Ranibizumab (Lucentis) |
8.60±1.29 | 70.67±2.36 | ||||||
Aflibercept (EYLEA) |
4.50±0.14 | 74.96±1.84 | ||||||
Bevacizumab (Avastin) |
10.29±0.70 | 73.08±4.20 |
Table: Average IC 50 and maximal inhibition of anti-VEGF agents. IC 50 values measured in nanomoles (nM) and
calculated from concentration of anti-VEGF agents. All values shown as average with standard deviation.
Inhibition of VEGF-Mediated Processes
Based on its ability to bind and inhibit VEGF, KSI-301 is expected to behave pharmacologically similar to Lucentis, EYLEA and Avastin to decrease the leakage of blood proteins and fluid into the retina. In fact, in vitro testing of KSI-301 against Lucentis, EYLEA and Avastin in their respective ability to inhibit VEGF-mediated endothelial cell proliferation (a key component of neovascularization) in primary human retina microvascular
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endothelial cells, or HRMVECs, showed that KSI-301 inhibited proliferation to approximately the same degree as EYLEA and with greater potency than Lucentis or Avastin. In addition, KSI-301 displayed a superior maximal inhibition of VEGF-mediated proliferation relative to EYLEA and Avastin.
Figure: Effects of KSI-301, Lucentis, EYLEA and Avastin on HRMVEC proliferation.
Molecule |
IC 50 (nM) |
Maximal
Inhibition (%) |
||||||
KSI-301 |
0.96±0.18 | 64.74±2.36 | ||||||
OG1950 |
0.85±0.07 | 58.92±5.30 | ||||||
Ranibizumab (Lucentis) |
1.25±0.14 | 60.96±2.53 | ||||||
Aflibercept (EYLEA) |
0.74±0.10 | 53.93±4.91 | ||||||
Bevacizumab (Avastin) |
1.25±0.36 | 38.98±6.18 |
Table: IC 50 Values and maximal inhibition of anti-VEGF agents on VEGF-mediated proliferation of HRMVECs. IC 50 values were calculated from concentration of anti-VEGF agents. All values shown as average with standard deviation.
To mimic in vivo conditions where endothelial cells and pericytes coexist in blood vessels, a three-dimensional co-culture of HRMVECs and human mesenchymal pericytes, or HMPs, grown on beads was established. This model was then used to test the ability of KSI-301 to inhibit VEGF-mediated vascular sprouting compared to Lucentis and EYLEA. The average number of sprouts per bead and the length per sprout were analyzed under each treatment condition.
As shown in the figures below, at maximal anti-VEGF inhibition the average sprout length of cultures treated with KSI-301 was substantially less than that of the control (481 compared with 990 microns) and comparable to Lucentis and EYLEA (505 and 428 microns respectively). The average number of sprouts per bead for cultures treated with KSI-301 was 11.5, which was comparable to 13.3 and 13.0 sprouts per bead observed for the cultures treated with Lucentis and EYLEA, respectively.
Figure: Effects of KSI-301 and other anti-VEGF molecules on length and number of vascular sprouts in 3-dimensional culture.
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Extended Ocular Half-Life versus Standard of Care Agents
The addition of the biopolymer intermediate increases the size of the biologic, thereby extending the ocular half-life of the molecule beyond that of standard of care anti-VEGF agents. Preclinical studies with KSI-301 in the well-established rabbit ocular pharmacokinetics model have demonstrated that KSI-301 has ocular tissue half-lives of 10+ days in the retina and 12.5+ days in the choroid. This is in comparison to published data for ocular tissue half-lives for Lucentis of 2.9 days and EYLEA of 4-5 days.
Enhanced Ocular Tissue Bioavailability versus EYLEA
The data also show that KSI-301, despite its large size, penetrates ocular tissues well and has a retina and choroid ocular tissue biodistribution that is more than four-fold higher than EYLEA.
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Modeling On-Mechanism Durability and Human Dose Frequency
In order to estimate the impact of high potency and extended ocular half-life on durability of effect, we used a pharmacokinetic and pharmacodynamic model that overlays rabbit ocular tissue pharmacokinetic profiles of intravitreally injected anti-VEGF therapeutics and correlates the drug levels with (1) human OCT data to define a rabbit minimal inhibitory concentration to maintain human on-mechanism durability that corresponds with human OCT outcomes, and (2) human dose frequency to define a rabbit minimal inhibitory concentration to support a dose frequency in humans which corresponds to the ability to maintain visual acuity outcomes over the long-term. Specifically, we overlay the ocular tissue pharmacokinetic profiles of Lucentis at 0.5 mg dose (the marketed dose in wet AMD), EYLEA at 2.0mg dose (the marketed dose), and bioconjugate KSI-301 at 5.0 mg dose (our selected dose), as separately tested.
Our modeling suggests a single dose of KSI-301 can stay above both on-mechanism and dosing minimal inhibitory concentrations for longer than 12 weeks. A minimal inhibitory concentration is the minimum concentration of a drug that still has the desired therapeutic effect. The implication is that KSI-301 may on average keep the retina dry for longer than 12 weeks after dosing, allowing patients to be dosed in regular 12-week intervals or less frequently and still maintain anti-VEGF mediated visual acuity gains over the long term. This contrasts with overextending the treatment interval beyond a point where retinal swelling recurs as observed in EYLEAs VIEW 2 Phase 3 clinical trial (as described above).
KSI-301 has demonstrated superior stability compared to typical protein therapeutics
Stability studies have shown that KSI-301 bioconjugate is stable in ex vivo vitreous for at least 4 months at 37°C. Further, forced degradation studies at the extreme condition of 64°C have shown that KSI-301 bioconjugate remains in solution and is optically clear for at least 48 hours whereas the precursor antibody protein precipitated forming an opaque white suspension within several hours.
Toxicology Profile
KSI-301 has demonstrated an attractive safety profile in GLP monkey toxicology studies. When dosed bilaterally via intravitreal injection at 2.5 mg or 0.5 mg per eye every four weeks, data to date show KSI-301 is
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well tolerated through seven doses. A dose-related anterior segment and posterior segment mild inflammatory response was observed and was not associated with other ocular abnormalities. The anterior segment response declined during the interval between doses and generally the finding was not present one-week post dose. No drug induced systemic toxicity was observed. Additionally KSI-301 was well tolerated up to the highest dose of 5 mg/kg when dosed intravenously every four weeks through ten weeks. To date, we believe this well tolerated profile in monkeys for KSI-301 is more favorable than that reported for Lucentis and EYLEA.
With EYLEA in GLP monkey toxicology studies, EYLEA formulations and, to a lesser extent, vehicle controls typically resulted in a mild anterior segment/vitreous inflammatory response. The severity was usually trace to mild with some occasions of moderate-severe, particularly in the low dose and also at 2 mg/eye and 4 mg/eye. Vitreal cells (generally mild) were observed in the majority of eyes through the dosing phase in all groups including controls. Some instances of moderate-severe were observed, but this was not persistent. At the end of the dosing phase, there was a test article-related increased incidence of epithelial erosion/ulceration often accompanied by chronic-active inflammation of the nasal turbinates in animals given 2 mg/eye and 4 mg/eye.
With Lucentis in GLP monkey toxicology studies, no drug-induced systemic toxicity was observed, but a strong dose-related inflammatory response was observed at all dose levels in all studies. Findings included multifocal perivenous hemorrhages, multifocal perivascular sheathing, inflammatory cell infiltrates (neutrophils, macrophages, plasma cells, lymphocytes, or eosinophils) in various ocular tissues, a cataractogenic effect was noted at dose levels of 1 mg/eye and 2 mg/eye. Fundus photography showed abnormal findings including venous dilatation and tortuosity, venous beading, possible peripapillary retinal thickening, macular thickening, possible papillary swelling, and avascular papillary tufts.
KSI-301 Commercialization
We currently have no sales, marketing or commercial product distribution capabilities and have no experience as a company in marketing products. We intend to build our own commercialization capabilities over time.
If KSI-301 receives marketing approval, we plan to commercialize it in the United States with our own focused, specialty sales force. We believe that retinal specialists in the United States, who perform most of the medical procedures involving diseases of the back of the eye, are sufficiently concentrated that we will be able to effectively promote KSI-301 to these specialists with a sales and marketing group of fewer than 200 persons.
We expect to use a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize KSI-301 in markets outside the United States.
KSI-301 Manufacturing
We believe it is important to our business and success to have a reliable, high-quality clinical drug supply. As we mature as a company and approach commercial stage operations, securing reliable high-quality commercial drug supply will be critical.
We do not currently own or operate facilities for product manufacturing, storage, distribution or testing.
We rely on third-party contract manufacturers, or CMOs, to manufacture and supply our clinical materials to be used during the development of our product candidates. We have established relationships with several CMOs, including Lonza AG, or Lonza, for the manufacture of KSI-301, as well as certain of our other product candidates.
We currently do not need commercial manufacturing capacity. When and if this becomes relevant, we intend to evaluate both third-party manufacturers as well as building out internal capabilities and capacity. We may choose one or both options, or a combination of the two.
The process for manufacturing KSI-301 consists of conjugating our antibody intermediate with our biopolymer intermediate. Our antibody intermediate is produced in a recombinant GS-CHO (Glutamine SynthetaseChinese Hamster Ovary) cell line in a protein-free and animal component-free medium. Our
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biopolymer intermediate is synthesized via a multi-step controlled living polymerization process, purified and formulated. Following conjugation of the intermediates, the bioconjugate drug substance is further purified, concentrated, and stored.
To date, we have relied primarily on Lonza for the manufacture of KSI-301, and we believe we have sufficient cGMP drug substance to support our planned Phase 2 clinical development. The manufacture of KSI-301, like other biologic products, is complex and we have actively worked with Lonza to develop and refine our manufacturing process. As our need for KSI-301 increases in connection with future clinical trials and, if approved, commercial quantities, we anticipate continued interaction with Lonza to refine and scale our manufacturing process. Our agreement with Lonza for the manufacture of KSI-301 is effective until 2020, subject to customary termination provisions. We have also identified multiple other CMOs that we believe would be capable of implementing and validating our manufacturing process for KSI-301 should the need arise.
ABC Platform
We believe that our ABC Platform is well suited to extend the durability of soluble, injectable retinal medicines, while at the same providing for other useful benefits. We intend to develop additional drug candidates by applying our ABC Platform in other significant areas of unmet medical need in retina and ophthalmic disease.
We believe our ABC Platform differentiates us and has the potential to fuel a pipeline of differentiated, non-biosimilar product candidates in high-prevalence ophthalmic diseases. In addition to KSI-301, we have leveraged our ABC Platform to build a pipeline of potential product candidates, including:
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KSI-201, a recombinant, mammalian cell expressed dual inhibitor antibody biopolymer bioconjugate, for the treatment of wet AMD; |
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KSI-401, a recombinant, mammalian cell expressed antibody biopolymer conjugate, for the treatment of dry AMD; and |
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KSI-501, a recombinant, mammalian cell expressed dual inhibitor antibody biopolymer conjugate, for the treatment of wet AMD and DR. |
cGMP master cell banks for both KSI-201 and KSI-401 have been completed, and we continue to evaluate each of the foregoing product candidates in various stages of development.
Overview of KSI-501
Overview of KSI-501
In addition to angiogenesis, inflammation has been implicated in the pathogenesis of a number of retinal diseases. Anti-inflammatory therapies such as steroids have been effective in treating both uveitis (a spectrum of diseases with intraocular inflammation as a defining characteristic) and DME. Similarly, genetically inherited variations in the interleukin 6, or IL-6, gene have been associated with higher PDR incidence in patients with type 2 diabetes. Moreover, disease progression in AMD, DR and RVO have been reported to be associated with increased serum and/or ocular levels of IL-6. Additionally, chronic inflammatory cells have been seen on the surface of the basement membrane behind the retina in eyes with wet AMD. Interestingly, IL-6 has been implicated in resistance to anti-VEGF treatments in DME patients. This in part is believed to be an indirect result of IL-6 mediated upregulation of VEGF expression as well as more direct VEGF-independent angiogenic functions mediated by IL-6 signaling that occur in the presence of VEGF inhibitors.
Our KSI-501 product candidate is a dual inhibitor Trap-Antibody-Fusion, or TAF, bioconjugate molecule designed to target concurrent inflammation and abnormal angiogenesis observed in the pathogenesis of retinal vascular diseases. KSI-501 acts through an anti-VEGF mechanism similar to EYLEA and an anti-inflammatory mechanism that targets the potent cytokine IL-6. Similar to KSI-301, KSI-501 uses the ABC Platform and is a bioconjugate of the TAF protein conjugated to our phosphorylcholine-based biopolymer. Preclinical binding and functional studies demonstrate that the TAF protein binds specifically and simultaneously to its intended targets. We believe that this dual inhibition may provide a superior treatment option for patients with retinal vascular
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diseases and in particular those patients with diseases known to have a high inflammatory component such as DME, as well as in ocular inflammatory diseases such as uveitis.
Components of KSI-501
KSI-501 is a bioconjugate of a dual inhibitor TAF protein and a phosphorylcholine-based biopolymer. The protein portion of KSI-501 has two VEGF binding domains from human VEGF receptors which together act as a trap or soluble receptor decoy to bind the most abundant isoforms of VEGF. The anti-VEGF trap domains are fused to a high-affinity IgG1 antibody that binds with high specificity and affinity to IL-6 and disrupts the ligands association with its cognate IL-6 receptor. Moreover, the Fc domain has been engineered to reduce immune effector function and facilitate site-specific conjugation to our phosphorylcholine-based biopolymer.
Notably, this IgG1 antibody sequence is identical to that from KSI-301, except for the six CDR regions that mediate target binding and which are specific for binding to the IL-6 target. Retaining the IgG1 frameworks across ABC Platform-derived product candidates enables platform capability which simplify manufacturing and product development. KSI-501, furthermore, uses the same cGMP biopolymer intermediate as KSI-301.
Figure: Functional structure of the KSI-501 antibody biopolymer conjugate. CH constant heavy, CL constant light, VH variable heavy, VL variable light, Complementarity Determining Regions (CDR).
Characteristics of KSI-501
We believe that KSI-501 can be a highly differentiated treatment due to its dual mechanism of action, with an improved durability and bioavailability profile due to the ABC Platform component. In addition, there are currently no IL-6 inhibitors approved for use in the eye.
We incorporated the following design features into KSI-501:
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Binds with high affinity to the most abundant isoforms of VEGF |
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Engineered to remove a protease hotspot to prevent cleavage in Chinese Hamster Ovary, or CHO, mammalian expression systems, which may improve potency and formulation stability |
Design Feature: KSI-501s anti-IL-6 domain
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Affinity matured, humanized anti-IL-6 IgG1 that binds with high affinity to IL-6 and inhibits binding of IL-6 to its cognate receptor |
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IgG1 Fc domain engineered to reduce immune effector functions |
Design Feature: KSI-501s phosphorylcholine-based ABC Platform
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Ultra-high molecular weight of 1,000,000 Daltons for improved ocular pharmacokinetics |
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Same IgG1 framework sequences and same phosphorylcholine-based biopolymer as KSI-301 and other ABC Platform-derived product candidates to simplify manufacturing and product development |
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Other benefits of the ABC Platform such as enhanced tissue access to key ocular tissues and bioconjugate stability |
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Note that the in vitro data shown below are generated using the TAF (protein) of KSI-501, without conjugation to our ABC biopolymer. Results using KSI-501 may be different, but experience with a structurally similar prior molecule, KSI-201, has shown that these individual components, i.e. trap antibody fusion protein and biopolymer, can function together simultaneously as a dual inhibitor bioconjugate. Prior experiences with bioconjugates KSI-201 and KSI-301 have also demonstrated that the biopolymer portion does not interfere with the bioactivity of the protein portion.
Affinity and concurrent binding to VEGF and IL-6
Preclinical studies indicate that the TAF portion of KSI-501 binds with high affinity to both VEGF and IL-6, as measured by SPR analysis (Table). Importantly, binding of each molecule has no effect on the binding of the other, and KSI-501 can bind to both molecules as shown below. Thus, we believe our dual inhibitor can simultaneously inhibit both of its targets with high potency.
Table: Binding kinetics of TAF portion of KSI-501 to huVEGF-A165 or IL-6 by SPR analysis.
Molecule |
K on (M) | K off (M) | K D (pM) | |||||||||
IL-6 |
3.72x10 | 6 | 4.06x10 | -4 | 109 | |||||||
VEGF-A165 |
1.07x10 | 7 | 1.63x10 | -4 | 15.2 |
Figure: TAF of KSI-501 simultaneously binds to IL-6 and VEGF by sandwich ELISA, which only shows a signal if a compound binds to both IL-6 and VEGF concurrently.
Inhibition of VEGF and IL-6
KSI-501 was designed to inhibit both VEGF and IL-6 mediated signaling that occur after the ligands bind to their respective receptors. The figure below shows that the TAF protein of KSI-501 effectively prevents VEGF from stimulating downstream VEGFR2 signaling in a reporter assay in a comparable manner to EYLEA, while anti-IL-6 alone served as a negative control.
Figure: VEGF stimulated reporter assay with increasing concentrations of anti-VEGF inhibitors
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The figure below shows that the control anti-IL-6 antibody and TAF protein of KSI-501 effectively compete with IL-6R for binding to plate-bound IL-6 and therefore inhibit this specific antigen-receptor interaction. The IC50 values for the control anti-IL-6 monoclonal antibody and the TAF protein are comparable (anti-IL-6 = 0.36 nM, KSI-501 = 0.47 nM), while EYLEA had no effect.
Figure: ELISA measuring IL-6 binding to IL-6R in the presence of increasing concentrations of anti-IL-6 inhibitors
Together, these data indicate that the TAF protein of KSI-501 inhibits both VEGF and IL-6 from binding their cognate receptors as effectively as the monotherapies. Importantly, these data also demonstrate that the TAF protein of KSI-501 can simultaneously block downstream signaling mediated by both VEGF and IL-6.
IL-6 and VEGF mediated proliferation of HUVECs
The ability of the TAF protein of KSI-501 to inhibit IL-6 and VEGF mediated angiogenic functions was tested in a Human Vascular Endothelial Cell, or HUVEC, proliferation assay as shown in the figure below. Importantly, the concentrations of VEGF and IL-6 used to stimulate proliferation were below the saturation point for each individual stimulant and under these conditions VEGF and IL-6 showed some synergy for growth. The presence of TAF protein significantly attenuated proliferation to approximately 50% of maximal growth, while neither EYLEA nor control anti-IL-6 alone had quantifiable effects. These data provide supporting evidence that KSI-501 can synergistically abrogate endothelial cell proliferation that is driven by concurrent inflammatory and VEGF mediated signaling.
Figure: VEGF/IL-6 mediated HUVEC proliferation in the presence of inhibitors
IL-6 and VEGF mediated tubule formation of HUVECs:
TAF protein of KSI-501 was also tested in an endothelial cell tubule formation assay. Treatment of HUVECs seeded on an extracellular basement membrane matrix (Matrigel) with VEGF and IL-6 together stimulate tubule formation to a higher degree than either treatment alone. The TAF protein of KSI-501 demonstrated superior inhibition of this tubule formation when compared to EYLEA or control anti-IL-6 antibody.
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Furthermore, quantification of the effects of each inhibitor on twenty parameters of HUVEC tubule formation show that the TAF protein significantly inhibited 17 of 20 angiogenic parameters versus control (compared to 4 of 20 for EYLEA and 7 of 20 for control anti-IL-6 antibody). TAF protein was statistically better than EYLEA and anti-IL-6 control in 12 of 20 parameters.
Figure: Quantification of IL-6/VEGF mediated HUVEC tubule formation in the presence or absence of inhibitor molecules using the Angiogenesis Analyzer plugin for ImageJ
Together, these data show that the TAF protein of KSI-501 can simultaneously bind IL-6 and VEGF to inhibit their downstream angiogenic signaling pathways. We believe that this novel dual inhibitor can provide an alternative option for the treatment of retinal vascular diseases, especially those that have a high inflammatory component and/or that do not respond adequately to anti-VEGF treatments alone.
Research and Development
We have committed, and expect to continue to commit, significant resources to enhancing our ABC Platform and developing new product candidates. We have assembled experienced research and development teams at our Palo Alto, California location with scientific, clinical and regulatory personnel. As of September 1, 2018, we had 23 employees primarily engaged in research and development. Of these employees, 12 hold a Ph.D. degree or M.D. (or equivalent) degree. From time to time we engage individuals to assist with certain research and development activities on a contractual basis for limited time periods. Our research and development expenses for the years ended December 31, 2016 and 2017 were $14.1 million and $22.0 million, respectively.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Our potential competitors include large pharmaceutical and biotechnology companies, and specialty pharmaceutical and generic or biosimilar drug companies. Many of our competitors have significantly greater
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financial and human resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring products, product candidates or other technologies complementary to our programs.
The key competitive factors affecting the success of KSI-301, if approved, are likely to be its efficacy, safety, method and frequency of administration, on-mechanism durability of therapeutic effect, convenience, price, the level of generic competition and the availability of coverage and reimbursement from government and other third-party payors. The method of administration of KSI-301, intravitreal injection, is commonly used to administer ophthalmic drugs for the treatment of severe disease and is generally accepted by patients facing the prospect of severe visual loss or blindness. However, a therapy that offers a less invasive method of administration might have a competitive advantage over one administered by intravitreal injection, depending on the relative safety of the other method of administration.
The current standard of care for wet AMD and advanced stages of DR is monotherapy administration of anti-VEGF drugs, principally Avastin, Lucentis and EYLEA, which are well-established therapies and are widely accepted by physicians, patients and third-party payors. Physicians, patients and third-party payors may not accept the addition of KSI-301 to their current treatment regimens for a variety of potential reasons, including:
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if they do not wish to incur the additional cost of KSI-301; |
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if they perceive the addition of KSI-301 to be of limited benefit to patients; |
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if they wish to treat with more than an anti-VEGF drug; |
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if sufficient coverage and reimbursement are not available; |
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if they do not perceive KSI-301 to have a favorable risk-benefit profile. |
We are developing KSI-301 as an alternative to existing anti-VEGF drugs, including Avastin, Lucentis and EYLEA. Accordingly, KSI-301 would directly compete with these therapies. While we believe KSI-301 will compete favorably with existing anti-VEGF drugs, future approved standalone or combination therapies for wet AMD with demonstrated improved efficacy over KSI-301 or currently marketed therapies with a favorable safety profile and any of the following characteristics might pose a significant competitive threat to us:
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a mechanism of action that does not involve VEGF; |
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a duration of action that obviates the need for frequent intravitreal injection; |
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a method of administration that avoids intravitreal injection; and |
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significant cost savings or reimbursement advantages compared to KSI-301 and other anti-VEGF therapies. |
Our commercial opportunity could be reduced or eliminated if one or more of our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. A drug with greater convenience than KSI-301 might make such a drug more attractive to physicians and patients. An anti-VEGF gene therapy product might substantially reduce the number and frequency of intravitreal injections when treating wet AMD or DR, making KSI-301 unattractive to physicians and patients. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected because in many cases insurers or other third-party payors seek to encourage the use of generic products.
In addition to currently available therapies, we are aware of a number of products in preclinical research and clinical development by third parties to treat wet AMD and DR. We expect that product candidates currently in
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clinical development, or that could enter clinical development in the near future, that inhibit the function of VEGF or inhibit the function of both VEGF and other factors, could represent significant competition if approved. These product candidates may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies. For example, we are aware that Novartis is developing brolucizumab, an anti-VEGF single-chain antibody fragment for the treatment of wet AMD, which recently completed two Phase 3 studies versus EYLEA. In these trials, brolucizumab met the primary efficacy endpoint of noninferiority to EYLEA in mean change in best-corrected visual acuity from baseline to week 48. In addition, Allergan is developing a competing anti-VEGF therapy, abicipar, which is part of a new class of drugs called DARPin therapies that uses genetically modified antibody proteins. Positive topline data from Allergans Phase 3 studies for abicipar in wet AMD were recently reported with a 15% incidence rate of ocular inflammation, and full data are expected to be presented in 2018. There are also several companies and research organizations pursuing treatments targeting other molecular targets, potential gene therapy treatments, stem cell transplant treatments and medical devices for the treatment of wet AMD and DR.
Because there are a variety of means to treat wet AMD and DR, our patents and other proprietary protections for KSI-301 will not prevent development or commercialization of product candidates that are different from KSI-301.
Government Regulation
Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.
U.S. Drug Development
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations, and biologics under the FDCA, the Public Health Service Act, or PHSA, and their implementing regulations. Both drugs and biologics also are 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 requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDAs refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Any future product candidates must be approved by the FDA through either a new drug application, or NDA, or a biologics license application, or BLA, process before they may be legally marketed in the United States. The process generally involves the following:
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completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP, requirements; |
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submission to the FDA of an IND, which must become effective before human clinical trials may begin; |
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approval by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before each trial may be initiated; |
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performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication; |
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submission to the FDA of an NDA or BLA; |
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a determination by the FDA within 60 days of its receipt of an NDA or BLA to accept the filing for review; |
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satisfactory completion of a FDA pre-approval inspection of the manufacturing facility or facilities where the drug or biologic will be produced to assess compliance with current good manufacturing practices, or cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve the drug or biologics identity, strength, quality and purity; |
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potential FDA audit of the preclinical and/or clinical trial sites that generated the data in support of the NDA or BLA; |
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FDA review and approval of the NDA or BLA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug or biologic in the United States; and |
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compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies. |
The data required to support an NDA or BLA are generated in two distinct developmental stages: preclinical and clinical. The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for any future product candidates will be granted on a timely basis, or at all.
Preclinical Studies and IND
The preclinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational product to humans, and must become effective before human clinical trials may begin.
Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical Trials
The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsors control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at
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which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.
A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA or BLA. The FDA will accept a well-designed and well-conducted foreign clinical study not conducted under an IND if the study was conducted in accordance with GCP requirements and the FDA is able to validate the data through an onsite inspection if deemed necessary.
Clinical trials in the United States generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.
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Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug. |
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Phase 2 clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted. |
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Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing. |
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA or BLA.
Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRBs requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the chemistry and physical characteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities in
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accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product and, among other things, companies must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that our product candidates do not undergo unacceptable deterioration over their shelf life.
NDA/BLA Review Process
Following completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA or BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. In short, the NDA or BLA is a request for approval to market the drug or biologic for one or more specified indications and must contain proof of safety and efficacy for a drug or safety, purity and potency for a biologic. The application may include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a products use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the United States.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA or BLA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis. According to the FDAs fee schedule, effective through September 30, 2018, the user fee for an application requiring clinical data, such as an NDA or BLA, is $2,421,495. PDUFA also imposes an annual product fee for human drugs and biologics (approximately $97,750) and an annual establishment fee (approximately $512,200) on facilities used to manufacture prescription drugs and 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. Additionally, no user fees are assessed on NDAs or BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.
The FDA reviews all submitted NDAs and BLAs before it accepts them for filing, and may request additional information rather than accepting the NDA or BLA for filing. The FDA must make a decision on accepting an NDA or BLA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA or BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of a new molecular-entity NDA or original BLA and respond to the applicant, and six months from the filing date of a new molecular-entity NDA or original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process is often extended by FDA requests for additional information or clarification.
Before approving an NDA or BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates an NDA or BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
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A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA or BLA identified by the FDA. The Complete Response Letter may require additional clinical data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.
Expedited Development and Review Programs
The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat a serious or life threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor can request the FDA to designate the product for fast track status any time before receiving NDA or BLA approval, but ideally no later than the pre-NDA or pre-BLA meeting.
Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies.
A product may also be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or use is restricted, it may require such post-marketing restrictions, as it deems necessary to assure safe use of the product.
Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to ensure an efficient drug development program. Fast track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards for approval, but may expedite the development or approval process.
Abbreviated Licensure Pathway of Biological Products as Biosimilar or Interchangeable
The Patient Protection and Affordable Care Act, or PPACA, or Affordable Care Act, or ACA, signed into law in 2010, includes a subtitle called 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 an FDA-licensed reference biological product. The BPCIA attempts to minimize duplicative testing, and thereby lower development costs and increase patient access to affordable treatments. An application for licensure of a biosimilar product must include information demonstrating biosimilarity based upon the following, unless the FDA determines otherwise:
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analytical studies demonstrating that the proposed biosimilar product is highly similar to the approved product notwithstanding minor differences in clinically inactive components; |
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animal studies (including the assessment of toxicity); and |
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a clinical study or studies (including the assessment of immunogenicity and pharmacokinetics or pharmacodynamics) sufficient to demonstrate safety, purity and potency in one or more conditions for which the reference product is licensed and intended to be used. |
In addition, an application must include information demonstrating that:
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the proposed biosimilar product and reference product utilize the same mechanism of action for the condition(s) of use prescribed, recommended, or suggested in the proposed labeling, but only to the extent the mechanism(s) of action are known for the reference product; |
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the condition or conditions of use prescribed, recommended, or suggested in the labeling for the proposed biosimilar product have been previously approved for the reference product; |
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the route of administration, the dosage form, and the strength of the proposed biosimilar product are the same as those for the reference product; and |
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the facility in which the biological product is manufactured, processed, packed or held meets standards designed to assure that the biological product continues to be safe, pure, and potent. |
Biosimilarity means that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components; and that there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product. In addition, the law provides for a designation of interchangeability between the reference and biosimilar products, whereby the biosimilar may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product. The higher standard of interchangeability must be demonstrated by information sufficient to show that:
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the proposed product is biosimilar to the reference product; |
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the proposed product is expected to produce the same clinical result as the reference product in any given patient; and |
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for a product that is administered more than once to an individual, the risk to the patient in terms of safety or diminished efficacy of alternating or switching between the biosimilar and the reference product is no greater than the risk of using the reference product without such alternation or switch. |
FDA approval is required before a biosimilar may be marketed in the United States. However, complexities associated with the large and intricate structures of biological products and the process by which such products are manufactured pose significant hurdles to the FDAs implementation of the law that are still being worked out by the FDA. For example, the FDA has discretion over the kind and amount of scientific evidencelaboratory, preclinical and/or clinicalrequired to demonstrate biosimilarity to a licensed biological product.
The FDA intends to consider the totality of the evidence, provided by a sponsor to support a demonstration of biosimilarity, and recommends that sponsors use a stepwise approach in the development of their biosimilar products. Biosimilar product applications thus may not be required to duplicate the entirety of preclinical and clinical testing used to establish the underlying safety and effectiveness of the reference product. However, the FDA may refuse to approve a biosimilar application if there is insufficient information to show that the active ingredients are the same or to demonstrate that any impurities or differences in active ingredients do not affect the safety, purity or potency of the biosimilar product. In addition, as with BLAs, biosimilar product applications will not be approved unless the product is manufactured in facilities designed to assure and preserve the biological products safety, purity and potency.
The submission of a biosimilar application does not guarantee that the FDA will accept the application for filing and review, as the FDA may refuse to accept applications that it finds are insufficiently complete. The FDA will treat a biosimilar application or supplement as incomplete if, among other reasons, any applicable user fees assessed under the Biosimilar User Fee Act of 2012 have not been paid. In addition, the FDA may accept an
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application for filing but deny approval on the basis that the sponsor has not demonstrated biosimilarity, in which case the sponsor may choose to conduct further analytical, preclinical or clinical studies and submit a BLA for licensure as a new biological product.
The timing of final FDA approval of a biosimilar for commercial distribution depends on a variety of factors, including whether the manufacturer of the branded product is entitled to one or more statutory exclusivity periods, during which time the FDA is prohibited from approving any products that are biosimilar to the branded product. The FDA cannot approve a biosimilar application for twelve years from the date of first licensure of the reference product. Additionally, a biosimilar product sponsor may not submit an application for four years from the date of first licensure of the reference product. A reference product may also be entitled to exclusivity under other statutory provisions. For example, a reference product designated for a rare disease or condition (an orphan drug) may be entitled to seven years of exclusivity, in which case no product that is biosimilar to the reference product may be approved until either the end of the twelve-year period provided under the biosimilarity statute or the end of the seven-year orphan drug exclusivity period, whichever occurs later. In certain circumstances, a regulatory exclusivity period can extend beyond the life of a patent, and thus block biosimilarity applications from being approved on or after the patent expiration date. In addition, the FDA may under certain circumstances extend the exclusivity period for the reference product by an additional six months if the FDA requests, and the manufacturer undertakes, studies on the effect of its product in children, a so-called pediatric extension.
The first biological product determined to be interchangeable with a branded product for any condition of use is also entitled to a period of exclusivity, during which time the FDA may not determine that another product is interchangeable with the reference product for any condition of use. This exclusivity period extends until the earlier of: (1) one year after the first commercial marketing of the first interchangeable product; (2) 18 months after resolution of a patent infringement against the applicant that submitted the application for the first interchangeable product, based on a final court decision regarding all of the patents in the litigation or dismissal of the litigation with or without prejudice; (3) 42 months after approval of the first interchangeable product, if a patent infringement suit against the applicant that submitted the application for the first interchangeable product is still ongoing; or (4) 18 months after approval of the first interchangeable product if the applicant that submitted the application for the first interchangeable product has not been sued.
Post-Approval Requirements
Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping requirements, requirements to report adverse experiences, and comply with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations (known as off-label use) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA/BLA or NDA/BLA supplement, which may require the development of additional data or preclinical studies and clinical trials.
The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the product. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing
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processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
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fines, warning letters or holds on post-approval clinical studies; |
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refusal of the FDA to approve pending applications or supplements to approved applications; |
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applications, or suspension or revocation of product license approvals; |
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product seizure or detention, or refusal to permit the import or export of products; or |
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injunctions or the imposition of civil or criminal penalties. |
The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Drugs and biologics may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
Other U.S. Regulatory Matters
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments.
For example, in the United States, sales, marketing and scientific and educational programs also must comply with state and federal fraud and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of biologic and pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, requests for recall, seizure of products, total or
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partial suspension of production, denial or withdrawal of product approvals or refusal to allow a firm to enter into supply contracts, including government contracts. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (1) changes to our manufacturing arrangements; (2) additions or modifications to product labeling; (3) the recall or discontinuation of our products; or (4) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
U.S. Patent-Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of FDA approval of any future 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 Act. The Hatch-Waxman Act permits restoration of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the products 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 an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.
Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of a NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
A reference biological product is granted twelve years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. First licensure typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in
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a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the first licensure of a biological product is determined on a case-by-case basis with data submitted by the sponsor.
European Union Drug Development
As in the United States, medicinal products can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained.
Similar to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.
The EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency. Recently enacted Clinical Trials Regulation EU No 536/2014 ensures that the rules for conducting clinical trials in the EU will be identical. In the meantime, Clinical Trials Directive 2001/20/EC continues to govern all clinical trials performed in the EU.
European Union Drug Review and Approval
In the European Economic Area, or EEA, which is comprised of the 27 Member States of the European Union (including Norway and excluding Croatia), Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations.
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The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. |
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National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the |
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Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the Member States Concerned). |
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Peoples Republic of China Drug Regulation
China heavily regulates the development, approval, manufacturing and distribution of drugs, including biologics. The specific regulatory requirements applicable depend on whether the drug is made and finished in China, which is referred to as a domestically manufactured drug, or made abroad and imported into China in finished form, which is referred to as an imported drug, as well as the approval or registration category of the drug. For both imported and domestically manufactured drugs, China typically requires regulatory approval for a clinical trial, or CTA, prior to submitting an application for marketing approval. For a domestically manufactured drug, there is also a requirement for a drug manufacturing license for a facility in China.
In 2017, the drug regulatory system entered a new and significant period of reform. The State Council and the China Communist Party jointly issued the Opinion on Deepening the Reform of the Regulatory Approval System to Encourage Innovation in Drugs and Medical Devices, or the Innovation Opinion. The expedited programs and other advantages under this and other recent reforms encourage drug manufacturers to seek market approval in China first, manufacture domestically, and develop drugs in high priority disease areas.
To implement the regulatory reform introduced by the Innovation Opinion, the China Drug Authority, or CDA, is currently revising the fundamental laws, regulations and rules regulating pharmaceutical products and the industry, which include the framework law known as the PRC Drug Administration Law, or DAL. The DAL is also generally implemented by a set of regulations issued by the State Council referred to as the DAL Implementing Regulation. The CDA has its own set of regulations implementing the DAL; the primary one governing clinical trial applications, marketing approval, and license renewal and amendment is known as the Drug Registration Regulation. However, the implementing regulations for many of the reforms in the Innovation Opinion had not been announced, and therefore, the details in the implementation of the regulatory changes remained uncertain in some respects.
Regulatory Authorities and Recent Government Reorganization
In the PRC, the CDA is the primary regulator for pharmaceutical products and businesses. It regulates almost all of the key stages of the life-cycle of pharmaceutical products, including nonclinical studies, clinical trials, marketing approvals, manufacturing, advertising and promotion, distribution, and pharmacovigilance (i.e., post-marketing safety reporting obligations). The Center for Drug Evaluation, or CDE, which is under the CDA, conducts the technical evaluation of each drug and biologic application for safety and effectiveness.
The National Health and Family Planning Commission, or NHFPC, formerly known as the Ministry of Health, or MOH, is Chinas chief healthcare regulator. It is primarily responsible for overseeing the operation of medical institutions, which also serve as clinical trial sites, and regulating the licensure of hospitals and other medical personnel. NHFPC plays a significant role in drug reimbursement. Furthermore, the NHFPC and its local counterparts at or below the provincial-level of local government also oversee and organize public medical institutions centralized bidding and procurement process for pharmaceutical products. This is the chief way that public hospitals and their internal pharmacies acquire drugs.
China has recently reorganized the agencies that regulate drugs, healthcare, and the state health insurance plans, although it is still not entirely clear what effect on policy these changes will ultimately have in terms of
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making the drug approval process more efficient. The drug regulatory agency, CFDA, is merged into a State Administration on Market Regulation, or SAMR, along with other agencies that regulate consumer protection, product quality and anti-monopoly. The drug, device and cosmetic regulatory functions of CFDA is put under the CDA, which is subordinate to the SAMR. The National Health Commission, or the NHC, will be the healthcare regulator replacing the NHFPC, and a new, separate State Medical Insurance Bureau will focus on regulating reimbursement under the state-sponsored insurance plans.
Pre-Clinical and Clinical Development
The CDA requires both pre-clinical and clinical data to support registration applications for imported and domestic drugs. Pre-clinical work, including pharmacology and toxicology studies, must meet the GLP, issued in July 2017. The CDA accredits GLP labs and requires that nonclinical studies on chemical drug substances and preparations and biologics that are not yet marketed in China be conducted there. There are no approvals required from the CDA to conduct pre-clinical studies.
Registration Categories
Prior to engaging with the CDA on research and development and approval, an applicant will need to determine the registration category for its drug candidate (which will ultimately need to be confirmed with the CDA), which will determine the requirements for its clinical trial and marketing application. There are five categories for small molecule drugs: Category 1 (innovative drugs) refers to drugs that have a new chemical entity that has not been marketed anywhere in the world, Category 2 (improved new drugs) refers to drugs with a new indication, dosage form, route of administration, combination, or certain formulation changes not approved in the world, Categories 3 and 4 are for generics that reference an innovator drug (or certain well-known generic drugs) marketed either abroad or in China, respectively, and Category 5 refers to originator or generic drugs that have already been marketed abroad but are not yet approved in China ( i.e. , many imported drugs).
Therapeutic biologics follow a similar categorization, with Category 1 being new to the world, but with fifteen product-specific categories. Like with small molecule drugs, Category 1 for biologics is also for innovative biologics that have not been approved inside or outside of China. A clear regulatory pathway for biosimilars does not yet exist, but the CDA may soon develop one in its revision of implementing rules pursuant to the Innovation Opinion. We have not yet discussed with the CDA the categorization of any of our product candidates, including KSI-301.
Expedited Programs Priority Evaluation and Approval Programs to Encourage Innovation
The CDA has adopted several expedited review and approval mechanisms since 2009 and created additional expedited programs in recent years that are intended to encourage innovation. Applications for these expedited programs can be submitted after the CTA is admitted for review by the CDE. If admitted to one of these expedited programs, an applicant will be entitled to more frequent and timely communication with reviewers at the CDE, expedited review and approval, and more agency resources throughout the approval process.
Clinical Trials and Marketing Approval
Upon completion of pre-clinical studies, a sponsor typically needs to conduct clinical trials in China for registering a new drug in China. The materials required for this application and the data requirements are determined by the registration category. The CDA has taken a number of steps to increase efficiency for approving CTAs, and it has also significantly increased monitoring and enforcement of GCP to ensure data integrity.
Trial Approval
All clinical trials conducted in China must be approved and conducted at hospitals accredited by the CDA. For imported drugs, proof of foreign approval is required prior to the trial, unless the drug has never been approved anywhere in the world. In addition to a standalone China trial to support development, imported drug
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applicants may establish a site in China that is part of an international multicenter trial, or IMCT, at the outset of the global trial. Domestically manufactured drugs are not subject to foreign approval requirements, and in contrast to prior practice, the CDA has recently indicated its intent to permit those drugs to conduct development via an IMCT as well.
In 2015, the CDA began to issue an umbrella approval for all phases (typically three) of a new drug clinical trial, instead of issuing approval phase by phase. For certain types of new drug candidates, clinical trial applications may be prioritized over other applications, and put in a separate expedited queue for approval. Other trials that are not part of these expedited lines could still wait up to a year for approval to conduct the trial.
The Innovation Opinion also introduces a notification system for new drug clinical trial approval. In other words, trials can proceed if after certain fixed period of time (possibly 60 days), the applicant has not received any objections from the CDE, as opposed to the lengthier current clinical trial pre-approval process in which the applicant must wait for affirmative approval. The Innovation Opinion also promises to expand the number of trial sites by truncating the timeline for accreditation by converting it from a pre-approval procedure into a notification procedure. These reforms will require implementing law and regulations in order to proceed in practice. The CDA proposed implementing legislation in 2017 but it has not yet been finalized.
Clinical Trial Process and Good Clinical Practices
Typically drug clinical trials in China have three phases. Phase 1 refers to the initial clinical pharmacology and human safety evaluation studies. Phase 2 refers to the preliminary evaluation of a drug candidates therapeutic efficacy and safety for target indication(s) in patients. Phase 3 (often the pivotal study) refers to clinical trials to further verify the drug candidates therapeutic efficacy and safety on patients with target indication(s) and ultimately provide sufficient evidence for the review of drug registration application. The CDA requires that the different phases of clinical trials in China receive ethics committee approval prior to approval of the CTA and comply with GCP. The CDA conducts inspections to assess GCP compliance and will cancel the CTA if it finds substantial issues.
The CDA may reduce requirements for trials and data, depending on the drug and the existing data. The CDA has granted waivers for all or part of trials, but it is now planning to take a more official position on the acceptance of foreign data to support an application. The foreign data must meet the CDAs requirements, including, for drugs that have never been approved before in China, having sufficient Chinese ethnic data. The precise requirements are not yet clear.
New Drug Application (NDA) and Approval
Upon completion of clinical trials, a sponsor may submit clinical trial data to support marketing approval for the drug. For imported drugs, this means issuance of an import license. Again, the applicant must submit evidence of foreign approval, unless it is an innovative drug that has never been approved anywhere in the world.
Domestically manufactured drugs must similarly submit data in support of a drug approval number. Under the current regime, upon approval of the registration application, the CDA will first issue a new drug certificate to the applicant. Only when the applicant is equipped with relevant manufacturing capability will the CDA issue a Drug Approval Serial Number, which is effectively the marketing approval allowing the holder to market/commercialize the drug in China.
Under the authorization of the Standing Committee of the National Peoples Congress, the State Council issued the Pilot Plan for the Drug Marketing Authorization Holder Mechanism on May 26, 2016, which provides a detailed pilot plan for the marketing authorization holder system, or MAH pilot program. Domestically established research institutions (including domestic companies) can apply through an MAH pilot program if they are established in one of 10 designated provinces (including Beijing and Shanghai) in China. The MAH pilot program permits research institutions and individuals to develop and hold the marketing approvals for drugs without holding a drug manufacturing license. The marketing authorization holders, or MAHs, may engage contract manufacturers and distributors.
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The MAH pilot program is set to run until November 2018. The Innovation Opinion indicates that China will strive to implement the MAH system nationally as soon as possible by amending the DAL. The CDA has proposed revisions to accomplish this purpose, but the timeline to finalize these proposals is still unclear.
New Drug Monitoring Period
Currently, new varieties of domestically produced drugs approved under Categories 1 or 2 in China may be placed under a monitoring period for three to five years. Category 1 innovative drugs will be monitored for five years. During the monitoring period, the CDA will not approve another CTA from another applicant for the same type of drug, except if another sponsor has an approved CTA at the time that the monitoring period is initiated it may proceed with its trial and become part of the period. Therefore, by blocking other CTAs, the monitoring period can act as a type of market exclusivity.
Acceptance of Foreign Clinical Trial Studies
On July 10, 2018, the CDA issued the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data, or the Guidance Principles, as one of the implementing rules for the Innovation Opinion. According to the Guidance Principles, sponsors may use the data of foreign clinical trials to support drug registration in China, provided that sponsors must ensure the authenticity, completeness and accuracy of foreign clinical trial data and such data must be obtained consistent with the relevant requirements under the Good Clinical Trial Practice (GCP) of the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH). Sponsors must also comply with other relevant sections of the Drug Registration Regulation when applying for drug registrations in China using foreign clinical trial data.
Post-Marketing Surveillance
The manufacturer or marketing authorization holder of marketing approval is primarily responsible for pharmacovigilance, including quality assurance, adverse reaction reporting and monitoring, and product recalls. Distributors and user entities (e.g., hospitals) are also required to report, in their respective roles, adverse reactions of the products they sell or use, and assist with the manufacturer of the product recall. A drug that is currently under the new drug monitoring period has to report all adverse drug reactions (as opposed to just serious adverse reactions) for that period.
Advertising and Promotion of Pharmaceutical Products
China has a strict regime for the advertising of approved medicines. No unapproved medicines may be advertised. The definition of an advertisement is very broad, and does not exclude scientific exchange. It can be any media that directly or indirectly introduces the product to end users. There is no clear line between advertising and any other type of promotion.
Other PRC national- and provincial-level laws and regulations
We are subject to changing regulations under many other laws and regulations administered by governmental authorities at the national, provincial and municipal levels, some of which are or may become applicable to our business. For example, regulations control the confidentiality of patients medical information and the circumstances under which patient medical information may be released for inclusion in our databases, or released by us to third parties. The privacy of human subjects in clinical trials is also protected under regulations, e.g., the case report forms must avoid disclosing names of the human subjects.
These laws and regulations governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future, including restrictions on transfer of healthcare data. The Cybersecurity Law that took effect in 2017 designates healthcare as a priority area that is part of critical information infrastructure, and Chinas cyberspace administration is trying to finalize a draft rule on cross-border transfer of personal information.
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Coverage and Reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. In the United States no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor-by-payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. For example, the ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies share of sales to federal health care programs. Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs.
The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturers outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and adding a new rebate calculation for line extensions (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. The Centers for Medicare & Medicaid Services, or CMS, have proposed to expand Medicaid rebate liability to the territories of the United States as well.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
For a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer. As of 2010, the ACA expanded the
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types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of childrens hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug prices are determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase.
As noted above, the marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. An increasing emphasis on cost containment measures in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
In addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining, and defending patent rights. We seek to protect our proprietary position by, among other methods, filing patent applications in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements, and product candidates that are important to the development and implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product candidates and continuing innovation to develop, strengthen, and maintain our proprietary position in the field. Although we are not party to any material in-license agreements as of the date of this prospectus, we may in the future pursue in-licensing opportunities to strengthen our proprietary position in the field. We additionally rely on data exclusivity, market exclusivity, and patent term extensions when available, and may seek and rely on regulatory protection afforded through orphan drug designations. Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements; to preserve the confidentiality of our trade secrets; to defend and enforce our proprietary rights, including our patents; and to operate without infringing the valid and enforceable patents and other proprietary rights of third parties.
We have prosecuted numerous patents and patent applications and possess know-how and trade secrets relating to the development and commercialization of our ABC Platform and product candidates, including related manufacturing processes and technology. As of August 30, 2018, we were the assignee of record for approximately three U.S. issued patents, and approximately nine U.S. pending patent applications directed to certain of our proprietary technology, inventions, and improvements and our most advanced product candidates, as well as approximately 12 patents issued in jurisdictions outside of the United States and approximately 51 patent applications pending in jurisdictions outside of the United States that, in many cases, are counterparts to the foregoing U.S. patents and patent applications. We also have one pending PCT application. For example, these patents and patent applications include claims directed to:
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therapeutic proteins and biologically active agents conjugated to a biopolymer, which comprise our ABC Platform; |
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specific therapeutics, including KSI-301; and |
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components of our therapeutics. |
The following patents and patent applications (including anticipated 20 year expiration dates, which could be altered by, for example, a disclaimer, patent term adjustment or patent term extension) relate to KSI-301 and/or ABC Platform:
Patent and Patent Application Numbers |
Anticipated U.S.
Expiration Date |
Description of Representative U.S. Claims |
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US 8,846,021, US Appl. No. 14/456,875, EP Patent No. 1988910, JP Patent No. 5528710, JP Patent No. 5745009, and foreign applications in certain jurisdictions claiming priority to PCT/US2007/005372 | 2/28/2027 | Representative claims include conjugates | ||
US Appl. No. 15/368,376, AU Patent No. 2011239434, and foreign applications in certain jurisdictions claiming priority to PCT/US2011/032768 | 4/15/2031 | Representative claims include conjugates | ||
US 8,765,432, US Appl. No. 15/099,234, AU Patent No. 2010330727, EP Patent No. 2512462, CN Patent No. ZL201080062252.7, JP Patent No. 5760007, JP Patent No. 5990629, MX Patent No. 346423, KR Patent No. 10-1852044, MO Patent No. J/002943, and foreign applications in certain jurisdictions claiming priority to PCT/US2010/061358 | 5/10/2030 | Representative claims include copolymers and methods of making copolymers (ABC Platform specifically) | ||
US Appl. No. 14/916,180 and foreign applications in certain jurisdictions claiming priority to PCT/US2014/054622 | 9/8/2034 | Representative claims include polymers and method of making polymers | ||
US Appl. No. 15/394500 and foreign applications in certain jurisdictions claiming priority to PCT/US2016/069336 | 12/29/2036 | Representative claims include antibody and antibody conjugate claims, as well as methods of making and using the conjugates. |
In the normal course of business, we intend to pursue, when possible, composition, method of use, dosing and formulation patent protection, as well as manufacturing and drug development processes and technology. The patents and patent applications we have filed outside of the United States are in Europe, Japan, and various other jurisdictions.
Individual patents extend for varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal term of patents in the countries in which they are obtained. Generally, patents issued for applications filed in the United States are effective for 20 years from the earliest effective filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The duration of patents outside of the United States varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date.
Our issued U.S. patents will expire on dates ranging from 2027 to 2035. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2027 to 2038. However, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and
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depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.
We have filed 18 trademark applications. These include two applications that have matured to registration in the United States, one of which has been cancelled. Ten of our applications have matured to registration, of which six are in China, and one is in each of the European Union, Japan, Singapore and Switzerland. We have six pending trademark applications, of which five are in the United States and one is in Canada. We also may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our technology and product candidates, in part, by entering into confidentiality agreements with those who have access to our confidential information, including our employees, contractors, consultants, collaborators, and advisors. We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we have confidence in these individuals, organizations, and systems, agreements or security measures may be breached and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or may be independently discovered by competitors. To the extent that our employees, contractors, consultants, collaborators, and advisors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For this and more comprehensive risks related to our proprietary technology, inventions, improvements and products, please see the section on Risk FactorsRisks Related to Intellectual Property.
We are also a party to an assignment and license agreement with a former collaborator, whereby we were assigned and non-exclusively licensed certain intellectual property relating to KSI-201 and related technology. Under this agreement, we agreed to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize KSI-201, and will owe milestone payments to our former collaborator upon the achievement of certain milestones related to KSI-201, as well as a low single digit percentage royalty on net sales of KSI-201. The assignment and license agreement includes customary termination provisions, including the right of the company to terminate for convenience and the right of either party to terminate for cause.
Employees
As of September 1, 2018, we had 28 employees, all of whom were full-time and around 23 of whom were engaged in research and development activities. Approximately 12 of our employees hold Ph.D. or M.D. degrees. Substantially all our employees are located in Palo Alto, California. None of our employees is represented by a labor union or covered under a collective bargaining agreement.
Facilities
Our corporate headquarters are located in Palo Alto, California, where we lease approximately 11,000 square feet of office, research and development, engineering and laboratory space pursuant to a lease agreement which commenced in October 2013 and would expire in October 2018. In March 2016, we executed a third lease amendment agreement that became effective March 31, 2016 and extended the lease term until October 31, 2023. This facility houses all our personnel. We believe that our existing facilities are adequate for our near-term needs but expect to need additional space as we grow. We believe that suitable additional or alternative space would be available as required in the future on commercially reasonable terms.
Legal Proceedings
As of the date of this prospectus, we are not a party to any material legal proceedings. In the normal course of business, we may be named as a party to various legal claims, actions and complaints. We cannot predict whether any resulting liability would have a material adverse effect on our financial position, results of operations or cash flows.
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Executive Officers and Directors
The following table sets forth the names, ages and positions of our executive officers and directors as of September 24, 2018:
Name |
Age |
Position |
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Executive Officers |
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Victor Perlroth, M.D. |
45 | Chief Executive Officer, President and Chairman of the Board | ||||
Jason Ehrlich, M.D., Ph.D. |
42 | Chief Medical Officer and Chief Development Officer | ||||
John A. Borgeson |
57 | Senior Vice President and Chief Financial Officer | ||||
Hong Liang, Ph.D. |
46 | Senior Vice President, Discovery Medicine | ||||
Non-Employee Directors |
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Felix J. Baker, Ph.D. (2)(3) |
49 | Director | ||||
Bassil I. Dahiyat, Ph.D. (1)(2)(3) |
47 | Director | ||||
Richard S. Levy, M.D. (1)(3) |
61 | Director | ||||
Robert A. Profusek (2)(3) |
68 | Director |
(1) |
Member of the Audit Committee |
(2) |
Member of the Compensation Committee |
(3) |
Member of the Nominating and Corporate Governance Committee |
Executive Officers
Victor Perlroth, M.D. co-founded Kodiak Sciences in 2009 and is our Chairman and Chief Executive Officer. Previously, Dr. Perlroth served as Venture Partner and then Entrepreneur in Residence at MPM Capital, a dedicated healthcare venture capital investment firm. In 2003, Dr. Perlroth co-founded Avidia Inc., a biopharmaceuticals drug discovery and development company which was acquired by Amgen Inc., where he served as General Manager and Vice President of Corporate Development. In this role, at various times he had broad management responsibility across both corporate and research and development activities. Previously, Dr. Perlroth worked at Guzik Technical Enterprises, an industry-leading provider of test equipment to the hard disk drive industry, where he was Chief Operating Officer. Dr. Perlroth earned his M.D. and M.B.A. degrees from Stanford University and an A.B. in Molecular Biology summa cum laude from Princeton University.
We believe Dr. Perlroths years of management experience in the pharmaceutical industry as well as his extensive understanding of our business, operations, and strategy qualify him to serve on our board of directors.
Jason Ehrlich, M.D., Ph.D. joined Kodiak as our Chief Medical Officer and Chief Development Officer in September 2018. Dr. Ehrlich, an ophthalmologist, is passionate about improving outcomes for patients with vision-threatening eye diseases through the development of innovative medicines. He is internationally recognized for his leadership and expertise in ophthalmic drug development. Prior to joining Kodiak, Dr. Ehrlich served in an executive capacity as Global Head, Clinical Ophthalmology at Genentech, a member of the Roche Group of pharmaceutical companies. In roles of increasing responsibility at Genentech and Roche from July 2008 to August 2018, Dr. Ehrlichs efforts as lead clinician for Lucentis in diabetic eye disease resulted in a unanimous FDA Advisory Committee vote and the first-ever FDA approval of an intraocular drug for diabetic macular edema; he then championed further expanding the Lucentis labeling into all forms of diabetic retinopathy, resulting in another first-ever FDA approval. Dr. Ehrlich guided the integration of the ophthalmic drug delivery company ForSIGHT VISION4 into Genentech/Roche after its acquisition, including oversight of the successful Phase II study of the ranibizumab Port Delivery System. In his work, Dr. Ehrlich has participated in or overseen numerous supplemental biologics license applications and both FDA and European health authority interactions. He led the global development of lampalizumab, including design and execution of the pivotal Phase III program that included over 1,800 patients, over 275 sites, and more than 20 countries. He also
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oversaw his teams effort to secure FDA approvals of Lucentis in its prefilled syringe and for choroidal neovascularization due to pathologic myopia, and the successful transition to global Phase III development of RO6867461, a novel bispecific antibody for retinal vascular disease. Dr. Ehrlich completed his Ophthalmology residency at Stanford University School of Medicine, earned his M.D. and Ph.D. degrees from Stanford through the NIH-funded Medical Scientist Training Program, and received his A.B. in Molecular Biology summa cum laude from Princeton University.
John A. Borgeson is our Senior Vice President and Chief Financial Officer and has served in this position since January 2016. Mr. Borgeson brings over 25 years of pharmaceutical industry experience in finance, strategy and operations on a global scale. From January 2013 until December 2015, Mr. Borgeson led finance for a variety of private biotech companies, including Labrys Biologics, Inc., which was acquired by Teva Pharmaceuticals. Previously, Mr. Borgeson was a Vice President of Finance at Pfizer Inc. and a member of Pfizers Global Finance and Business Operations Leadership Team. Mr. Borgesons roles at Pfizer included finance head for Pfizers biotherapeutics and bioinnovation group and corporate tax executive with responsibility for the United States and Europe. Mr. Borgeson started his career as an auditor with Ernst & Young and is a certified public accountant (inactive). He has an M.B.A. from R.I.T. and an undergraduate degree from the School of Management at the University at Buffalo (S.U.N.Y.).
Hong Liang, Ph.D. is our Senior Vice President, Discovery Medicine and has served in this position since December 2015. Dr. Liang has 20 years of experience in research and development in protein therapeutics. Prior to joining Kodiak, Dr. Liang worked at the Rinat Laboratory of Pfizer Inc. in roles with increasing levels of responsibility from August 2009 to December 2015, most recently as Senior Director, focusing on antibody biologics design and discovery through Phase 3 clinical development as well the application of translational biomarkers to drug development. Dr. Liang trained as a postdoctoral fellow at Stanford University, earned a Ph.D. degree at Northwestern University, and completed requirements in Biology at the University of Science and Technology of China.
Board of Directors
Felix J. Baker, Ph.D. has served as one of our directors since September 2015 and as chair of our compensation committee and a member of our nominating and corporate governance committee since September 2018. Dr. Baker is Co-Managing Member of Baker Bros. Advisors LP. Dr. Baker and his brother, Julian Baker, started their fund management careers in 1994 when they co-founded a biotechnology investing partnership with the Tisch Family. In 2000, they founded Baker Bros. Advisors LP. Dr. Baker currently also serves on the boards of directors of three public companies: Seattle Genetics, Inc., Genomic Health, Inc. and Alexion Pharmaceuticals, Inc. From October 2000 to June 2015, Dr. Baker additionally served on the board of directors of Synageva BioPharma Corp. Dr. Baker holds a B.S. and a Ph.D. in Immunology from Stanford University, where he also completed two years of medical school.
We believe Dr. Bakers experience as a board member and investor in many successful biotechnology companies qualify him to serve on our board of directors.
Bassil I. Dahiyat, Ph.D. has served as a member of our board of directors since June 2018 and as chair of our audit committee and a member of our compensation committee and nominating and corporate governance committee since September 2018. Dr. Dahiyat has served as President and Chief Executive Officer of Xencor, Inc., a biopharmaceutical company, since February 2005. Dr. Dahiyat co-founded Xencor in 1997, served as its Chief Executive Officer from 1997 to 2003 and served as its Chief Scientific Officer from 2003 to 2005. In 2005, Dr. Dahiyat was recognized as a technology pioneer by the World Economic Forum. Additionally, Dr. Dahiyat was named one of 2003s Top 100 Young Innovators by MITs Technology Review magazine for his work on protein design and its development for therapeutic applications and has received awards from the American Chemical Society, the Controlled Release Society and the California Institute of Technology. Dr. Dahiyat currently serves on Xencors board of directors. Dr. Dahiyat holds a Ph.D. in Chemistry from the California Institute of Technology and B.S. and M.S.E. degrees in Biomedical Engineering from Johns Hopkins University.
We believe Dr. Dahiyats significant experience in the pharmaceutical industry and executive management experience qualify him to serve on our board of directors.
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Richard S. Levy, M.D. has served as a member of our board of directors since June 2018 and a member of our audit committee and nominating and corporate governance committee since September 2018. Since December 2016, Dr. Levy has served as a senior advisor of Baker Bros. Advisors LP, a registered investment advisor focused on long-term investments in life sciences companies on behalf of major university endowments and foundations. From January 2009 to April 2016, Dr. Levy served as Executive Vice President and Chief Drug Development Officer of Incyte Corporation, a pharmaceutical company, where he previously served as Senior Vice President of Drug Development from August 2003 to January 2009. Prior to joining Incyte, Dr. Levy served as Vice President, Biologic Therapies, at Celgene Corporation, a biopharmaceutical company, from 2002 to 2003. From 1997 to 2002, Dr. Levy served in various executive positions with DuPont Pharmaceuticals Company, first as Vice President, Regulatory Affairs and Pharmacovigilance, and thereafter as Vice President, Medical and Commercial Strategy. Dr. Levy served at Sandoz, a predecessor company of Novartis, from 1991 to 1997 in positions of increasing responsibility in clinical research and regulatory affairs. Prior to joining the pharmaceutical industry, Dr. Levy served as an Assistant Professor of Medicine at the UCLA School of Medicine. Dr. Levy currently serves on the board of directors of Madrigal Pharmaceuticals Inc. and of Aquinox Pharmaceuticals. Dr. Levy is board certified in Internal Medicine and Gastroenterology and received his A.B. in Biology from Brown University, his M.D. from the University of Pennsylvania School of Medicine, and completed his training in Internal Medicine and Gastroenterology at the Hospital of the University of Pennsylvania and a fellowship in Gastroenterology and Hepatology at UCLA.
We believe Dr. Levys significant experience in the pharmaceutical industry and medical training qualify him to serve on our board of directors.
Robert A. Profusek has served as one of our directors since June 2018, as our lead independent director since August 2018 and as chair of our nominating and corporate governance committee and a member of our compensation committee since September 2018. Mr. Profusek is a partner of the Jones Day law firm where he is the global chair of the firms mergers and acquisitions practice. His law practice focuses on mergers, acquisitions, takeovers, restructurings and corporate governance matters. Mr. Profusek is also the lead independent director of Valero Energy Corporation, a publicly traded international manufacturer and marketer of transportation fuels and other petrochemical products, and CTS Corporation, a publicly traded designer and manufacturer of sensors, actuators and electronic components. He served as a director of the managing general partner of Valero L.P. (now known as NuStar Energy L.P.) from 2001 to 2005. Mr. Profusek holds a B.A. from Cornell University and a J.D. from New York University.
We believe Mr. Profusek is qualified to serve as a board member because of his expertise in legal matters, including corporate governance; capital markets expertise attained through his extensive experience in mergers and acquisitions and financing activities; managerial experience attained through his leadership roles with Jones Day; and the knowledge and experience he has attained through his service as a director of other public companies.
Board Composition and Risk Oversight
Our board of directors is currently composed of five members. Each of our directors other than Dr. Perlroth is independent within the meaning of the independent director guidelines of the Nasdaq Global Market. All of the directors other than Dr. Perlroth were initially elected to our board of directors pursuant to a voting agreement that will terminate automatically by its terms upon the completion of a qualified initial public offering. Our certificate of incorporation and bylaws to be in effect upon the completion of this offering provide that the number of our directors shall be at least one and will be fixed from time to time by resolution of our board of directors. There are no family relationships among any of our directors or executive officers.
Immediately prior to the completion of this offering, our board of directors will be divided into three classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the class whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during the years 2019 for the Class I directors, 2020 for the Class II directors and 2021 for the Class III directors.
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Our Class I directors will be Dr. Levy and Mr. Profusek. |
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Our Class II director will be Dr. Dahiyat. |
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Our Class III directors will be Drs. Perlroth and Baker. |
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. See the section of this prospectus titled Description of Capital StockAnti-Takeover Effects of Delaware and Our Certificate of Incorporation and Bylaws for a discussion of other anti-takeover provisions found in our certificate of incorporation.
Our board of directors has an active role, as a whole and also at the committee level, in overseeing the management of our risks. The board of directors is responsible for general oversight of risks and regular review of information regarding our risks, including credit risks, liquidity risks and operational risks. Our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. Our audit committee is responsible for overseeing the management of our risks relating to accounting matters and financial reporting. Our nominating and corporate governance committee is responsible for overseeing the management of our risks associated with the independence of our board of directors and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed through discussions from committee members about such risks. Our board of directors believes its administration of its risk oversight function has not affected the board of directors leadership structure.
Director Independence
Upon the completion of this offering, we anticipate that our common stock will be listed on the Nasdaq Global Market. Under the rules of the Nasdaq Global Market, independent directors must comprise a majority of a listed companys board of directors within a specified period of the completion of this offering. In addition, the rules of the Nasdaq Global Market require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and corporate governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under the rules of the Nasdaq Global Market, a director will only qualify as an independent director if, in the opinion of that companys board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
To be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his capacity as a member of the audit committee, the 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.
In August 2018, our board of directors undertook a review of its composition, the composition of its committees and the independence of our directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his or her responsibilities. 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 Dr. Perlroth, none of our directors has 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 rules of the Nasdaq Global Market. In September 2018, our board of directors also determined that Dr. Dahiyat and Dr. Levy, who comprise our audit committee; Dr. Baker, Mr. Profusek, and Dr. Dahiyat, who comprise our compensation committee; and Mr. Profusek, Dr. Baker, Dr. Levy, and Dr. Dahiyat, who comprise our nominating and corporate governance committee, satisfy the independence standards for those committees established by applicable SEC rules and the rules of the Nasdaq Global Market. In making this determination, our board of directors considered the 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 Leadership Structure
Dr. Perlroth, our chief executive officer, is also the chairman of our board of directors. Our board of directors determined that having our chief executive officer also serve as the chairman of our board of directors provides us with optimally effective leadership and is in our best interests and those of our stockholders. Dr. Perlroth co-founded our company, and our board of directors believes that Dr. Perlroths years of management experience in the pharmaceutical industry as well as his extensive understanding of our business, operations, and strategy make him well qualified to serve as chairman of our board.
In August 2018, our board of directors appointed Mr. Profusek to serve as our lead independent director. As lead independent director, Mr. Profusek will preside over periodic meetings of our independent directors, serve as a liaison between the chairman of our board of directors and the independent directors and perform such additional duties as our board of directors may otherwise determine and delegate.
Board Committees
Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which has the composition and the responsibilities described below.
Audit Committee
The members of our audit committee are Dr. Dahiyat and Dr. Levy, each of whom is a non-employee member of our board of directors. Our audit committee chairman, Dr. Dahiyat, is our audit committee financial expert, as that term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, and possesses financial sophistication, as defined under the rules of the Nasdaq Global Market. Our audit committee oversees our corporate accounting and financial reporting process and assists our board of directors in monitoring our financial systems. Our audit committee operates under a written charter that specifies its duties and responsibilities and satisfies the applicable listing standards of the Nasdaq Global Market. Our board of directors has determined that each of Dr. Dahiyat and Dr. Levy is independent for audit committee purposes, as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and have sufficient knowledge in financial and auditing matters to serve on the audit committee. We intend to rely on the phase-in provisions of Rule 10A-3 of the Exchange Act and the Nasdaq transition rules applicable to companies completing an initial public offering, and we plan to have an audit committee comprised entirely of at least three directors that are independent for purposes of serving on an audit committee within one year after our listing.
Our audit committee will:
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approve the hiring, discharging and compensation of our independent registered public accounting firm; |
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oversee the work of our independent registered public accounting firm; |
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approve engagements of the independent registered public accounting firm to render any audit or permissible non-audit services; |
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review the qualifications, independence and performance of the independent registered public accounting firm; |
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review our consolidated financial statements and review our critical accounting policies and estimates; |
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review the adequacy and effectiveness of our internal controls; and |
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review and discuss with management and the independent registered public accounting firm the results of our annual audit, our quarterly consolidated financial statements and our publicly filed reports. |
Compensation Committee
The members of our compensation committee are Dr. Baker, Mr. Profusek and Dr. Dahiyat. Dr. Baker is the chairman of our compensation committee. Our compensation committee oversees our compensation policies,
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plans and benefits programs. Our compensation committee operates under a written charter that specifies its duties and responsibilities and satisfies the applicable listing standards of the Nasdaq Global Market. The compensation committee will:
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review and recommend policies relating to compensation and benefits of our officers and employees; |
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review and approve corporate goals and objectives relevant to compensation of our chief executive officer and other senior officers; |
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evaluate the performance of our officers in light of established goals and objectives; |
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recommend compensation of our officers based on its evaluations; and |
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administer the issuance of stock options and other awards under our stock plans. |
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance committee are Mr. Profusek, Dr. Baker, Dr. Levy and Dr Dahiyat. Mr. Profusek is the chairman of our nominating and corporate governance committee. Our nominating and corporate governance committee oversees and assists our board of directors in reviewing and recommending nominees for election as directors. Our nominating and corporate governance committee operates under a written charter that specifies its duties and responsibilities and satisfies the applicable listing standards of the Nasdaq Global Market. The nominating and corporate governance committee will:
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evaluate and make recommendations regarding the organization and governance of the board of directors and its committees; |
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assess the performance of members of the board of directors and make recommendations regarding committee and chair assignments; |
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recommend desired qualifications for board of directors membership and conduct searches for potential members of the board of directors; and |
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review and make recommendations with regard to our corporate governance guidelines. |
Our board of directors may from time to time establish other committees.
Director Compensation
For the year ended December 31, 2017, neither of Drs. Perlroth nor Baker, our two directors then serving, received compensation or reimbursement in connection with their service on our board of directors and Dr. Baker did not hold any option awards at December 31, 2017.
In September 2018, we adopted an Outside Director Compensation Policy, which will become effective on the date of effectiveness of the registration statement of which this prospectus forms a part. This Outside Director Compensation Policy was developed, with input from our independent compensation consultant firm, Compensia, Inc., or Compensia, regarding practices and compensation level at comparable companies. It is designed to attract, retain, and reward non-employee directors.
Cash Compensation
Under the Outside Director Compensation Policy, our non-employee directors will be eligible to receive annual cash compensation for service on our board of directors and committees of our board of directors as follows subject to the limits in our 2018 Equity Incentive Plan:
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$40,000 for service as an outside director; |
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$30,000 for service as non-executive chairperson of the board of directors; |
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$24,000 for service as lead independent director; |
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$20,000 for service as chairperson of the audit committee; |
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$9,000 for service as a member of the audit committee; |
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$13,000 for service as chairperson of the compensation committee; |
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$6,500 for service as a member of the compensation committee; |
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$9,000 for service as chairperson of the nominating and corporate governance committee; and |
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$5,000 for service as a member of the nominating and corporate governance committee. |
All cash payments to non-employee directors will be paid quarterly in arrears on a prorated basis.
Equity Compensation
Initial Options. Subject to the limits in our 2018 Equity Incentive Plan, each person who first becomes a non-employee director (other than a person that ceases to be an employee of ours but remains a director of ours) on or following the effective date of the outside director compensation policy will be granted an initial option to purchase shares of our common stock with a grant date value of approximately $400,000, which grant will be effective on the first trading date on or after the date on which such person first becomes a non-employee director on or following the effective date of the outside director compensation policy, whether through election by our stockholders or appointment by our board of directors to fill a vacancy. Each initial option will vest as to 1/3rd of the shares subject to the initial option on the one-year anniversary of the date of grant and as to 1/36th of the shares subject to the initial option each month thereafter, in each case, subject to continued service through each applicable vesting date.
Annual Options. Subject to the limits in our 2018 Equity Incentive Plan, each non-employee director will be automatically granted, on the date of each annual meeting of our stockholders following the effective date of the outside director compensation policy, an annual option to purchase shares of our common stock with a grant date value of approximately $150,000. Each annual option will fully vest on the earlier of (1) the one-year anniversary of the date of grant of the annual option or (2) the day prior to the date of the next annual meeting of our stockholders that occurs following the grant of such annual option, in each case, subject to continued service through the applicable vesting date.
In the event of a change in control, and unless otherwise agreed, each non-employee director will fully vest in his or her outstanding equity awards, including any initial option or annual option, provided that he or she continues to be a non-employee director through such date.
We also will continue to reimburse our outside directors for reasonable, customary and documented travel expenses incurred in connection with attending board and board committee meetings.
In connection with their joining our board of directors in 2018, each of our non-employee directors (other than Dr. Baker) was granted an option to purchase 50,000 shares of our common stock with an exercise price of $5.38 per share. Each of these options vests as to 1/3rd of the shares subject to the option on the one-year anniversary of the vesting start date and as to 1/36th of the shares subject to the option each month thereafter, in each case, subject to continued service through each applicable vesting date. In determining the size and terms of these awards, our board of directors considered such factors as it determined appropriate, including, the market data and recommendations provided by Compensia, the compensation level of non-employee directors at comparable companies, the expected timing of the issuance of future equity awards to them under the Outside Director Compensation Policy, and the expected future contributions of these non-employee directors to our company.
Code of Business Conduct and Ethics
In August 2018, we adopted 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
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officer or controller, or persons performing similar functions. The code of business conduct and ethics will become effective on the date of effectiveness of the registration statement of which this prospectus forms a part. Following this offering, a copy of the code will be posted on the investor section of our website.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are Dr. Baker, Mr. Profusek and Dr. Dahiyat. None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our board of directors or compensation committee. See the section of this prospectus titled Certain Relationships and Related Party Transactions for additional information.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation and bylaws provide for the indemnification of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law. In addition, our certificate of incorporation provides that our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director and that if the Delaware General Corporation Law is amended to authorize corporate action further limiting the personal liability of directors, then the liability of our directors shall be limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
As permitted by the Delaware General Corporation Law, we have entered into separate indemnification agreements with each of our directors and certain of our officers that require us, among other things, to indemnify them against certain liabilities which may arise by reason of their status as directors or officers. We maintain insurance policies under which our directors and officers are insured, within the limits and subject to the limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities that might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been directors or officers. The coverage provided by these policies may apply whether or not we would have the power to indemnify such person against such liability under the provisions of the Delaware General Corporation Law.
We believe that these provisions and agreements are necessary to attract and retain qualified persons as our officers and directors. At present, there is no pending litigation or proceeding involving our directors or officers for whom 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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Summary Compensation Table
The following table provides information regarding the compensation of our named executive officers.
Name and Principal Position |
Year | Salary | Bonus |
Option
Awards (1) |
All Other
Compensation |
Total | ||||||||||||||||||
Victor Perlroth, M.D. |
2017 | $ | 387,600 | | | $ | 141,285 | (2) | $ | 528,885 | ||||||||||||||
Chairman and Chief Executive Officer |
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John Borgeson |
2017 | 297,250 | | | | 297,250 | ||||||||||||||||||
Senior Vice President and Chief Financial Officer |
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Hong Liang, Ph.D. |
2017 | 254,584 | $ | 46,125 | $ | 21,200 | | 321,909 | ||||||||||||||||
Senior Vice President, Discovery Medicine |
(1) |
The amounts included in the Option Awards column represent the aggregate grant date fair value of option awards calculated in accordance with FASB ASC Topic 718, using the Black-Scholes option pricing model. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. See Note 2 of the notes to our consolidated financial statements included elsewhere in this prospectus for a discussion of assumptions made in determining the grant date fair value and compensation expense of our stock options. |
(2) |
Represents additional amounts paid to Dr. Perlroth relating to his temporary assignment to Kodiak Sciences GmbH from February 20, 2017 to July 14, 2017 and consists of (a) $72,622 in storage and insurance of household goods, educational expenses, international cellular charges and travel reimbursements; and (b) $68,663 of Swiss income tax reimbursement and U.S. income tax gross-ups in respect of the foregoing benefits. |
Outstanding Equity Awards at December 31, 2017
The following table shows grants of stock options and stock awards to each of our named executive officers outstanding at December 31, 2017.
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Name |
Vesting
Commencement Date |
Number of
Securities Underlying Unexercised Options Exercisable (#) |
Number of
Securities Underlying Unexercised Options Unexercisable (#) |
Exercise
Prices ($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested (#) |
Market
Value of Shares of Units of Stock That Have Not Vested ($) |
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Victor Perlroth, M.D. |
9/8/2015 | 168,750 | 131,250 | (1)(2)(3) | 1.04 | 6/24/2026 | | |||||||||||||||||||||
9/8/2015 | | | | | 23,767 | (2)(3) | ||||||||||||||||||||||
1/1/2015 | | | | | 211,426 | (2)(3) | ||||||||||||||||||||||
1/1/2014 | | | | | 625 | (2)(3) | ||||||||||||||||||||||
John Borgeson |
1/1/2016 | 42,460 | 46,154 | (1)(2)(3) | 1.04 | 6/24/2026 | | |||||||||||||||||||||
1/1/2016 | | | | | 46,154 | (2)(3) | ||||||||||||||||||||||
6/1/2014 | | | | | 9,661 | (2)(3) | ||||||||||||||||||||||
Hong Liang, Ph.D. |
4/15/2017 | 3,333 | 16,667 | (2)(3) | 1.06 | 5/16/2027 | | |||||||||||||||||||||
12/7/2015 | 66,000 | 66,000 | (3)(4) | 1.04 | 6/24/2026 | |
(1) |
Subject to an early exercise right and may be exercised in full prior to vesting of the shares underlying such option. |
(2) |
Vests over four years in equal monthly installments, subject to continued service the applicable vesting date. |
(3) |
Vesting is subject to the vesting acceleration provisions set forth in the named executive officers employment agreement. See Executive Employment Arrangements below for more information on vesting acceleration. |
(4) |
Vests as to 25% of the shares on the first anniversary of the vesting commencement date, with the remainder vesting in equal monthly installments over the following 36 months, subject to continued service through the applicable vesting date. |
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2018 Executive Officer Equity Awards
In April 2018, our executive officers were granted the following options to purchase shares of our common stock: (1) an option covering 600,000 shares to Dr. Perlroth, (2) an option covering 200,000 shares to Mr. Borgeson, and (3) an option covering 100,000 shares to Dr. Liang. Each option has an exercise price of $5.38 per share and vests as to 1/48th of the shares subject to the option each month after the vesting start date, in each case, subject to continued service through each applicable vesting date. In determining the size and terms of these option grants, our board of directors considered such factors as it determined appropriate, including, the vested status of each executive officers current equity holdings, the executive officers role and position within our organization, and the expected future contributions of these executive officers.
In connection with his hiring, Dr. Ehrlich received an option covering 425,000 shares. This option has an exercise price per share of $10.29 per share and vests as to 1/4th of the shares subject to the option on the one-year anniversary of the vesting start date and as to 1/48th of the shares subject to the option each month thereafter, in each case, subject to continued service through each applicable vesting date. In addition, on the effective date of the filing of a registration statement on Form S-8 under the Securities Act, Dr. Ehrlich will receive an award of restricted stock units having a value of approximately $600,000, with the number of restricted stock units determined based on the initial public offering price. The restricted stock unit award granted to Dr. Ehrlich will vest as to 50% of the restricted stock units 12 months after the awards grant date, as to 25% of the restricted stock units 18 months after the awards grant date, and as to 25% of the restricted stock units 24 months after the awards grant date, in each case, subject to continued service through each applicable vesting date.
In September 2018, our executive officers were granted the following options to purchase shares of our common stock, subject to and effective upon the effectiveness of the registration statement of which this prospectus forms a part: (1) an option covering 540,791 shares to Dr. Perlroth, (2) an option covering 161,662 shares to Mr. Borgeson, (3) an option covering 69,820 shares to Dr. Liang, and (4) an option covering 56,682 shares to Dr. Ehrlich. Each option has an exercise price per share equal to the fair market value of a share of our common stock as of the effective date of the registration statement of which this prospectus forms a part, which price will be the same as the price set forth on the cover page of this prospectus. Each option vests as to 1/60th of the shares subject to the option on each monthly anniversary of the grant date, in each case, subject to continued service through each applicable vesting date. These option grants represent the annual grants to our executive officers that otherwise would have been made in early 2019. We believed it was important to grant these options in connection with this offering in order to provide additional incentives for our executive officers to drive growth in our business following the offering. In determining the size of these option grants, we considered the median size of equity awards granted by similarly situated companies and our executives past and expected future contributions to our company.
The vesting of each grant described in this section is subject to the vesting acceleration provisions in the applicable executive officers employment agreement that are described in the Executive Employment Arrangements section below.
Executive Employment Arrangements
We have entered into written offer letters setting forth the terms and conditions of employment for each of our named executive officers, as described below. These agreements provide for at-will employment. In addition, each of our named executive officers has executed our standard form of confidential information, invention assignment and arbitration agreement.
Victor Perlroth
Dr. Victor Perlroth has been our Chief Executive Officer and director since inception in June 2009. In September 2018, we entered into an employment agreement with Dr. Perlroth in connection with this offering. Dr. Perlroths annual base salary is currently $399,228 and will increase to $516,000 upon the effectiveness of the registration statement of which this prospectus forms a part. Dr. Perlroth is considered annually for a target
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bonus, which is currently equal to 45% of his annual base salary and will be increased to 50% of his annual base salary upon the effectiveness of the registration statement of which this prospectus forms a part.
Dr. Perlroths employment agreement also provides that if his employment is terminated without cause, or he terminates his employment for good reason (as such terms are defined in his employment agreement), he is entitled to (1) a lump sum payment equal to 18 months base salary, (2) a lump sum payment equal to his maximum target annual bonus, prorated for the portion of the fiscal year elapsed as of the termination date (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction (as defined in his employment agreement), 150% of his maximum target annual bonus, without proration), (3) if he elects to continue receiving health care and dental coverage under COBRA, our payment of the premiums for such continuation coverage for up to 18 months, or if such payments are not permitted by law, monthly taxable payments to him in lieu of our payment of such COBRA premiums, and (4) accelerated vesting of his outstanding equity awards equal to the portion of the equity awards that would have vested had he continued to be employed by us during the 12-month period after his termination (or if his termination occurs on or within 24 months of a corporate transaction, 100% of the unvested portions of the equity awards). In addition, if on the date 24 months immediately following the consummation of any corporate transaction Dr. Perlroth is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then 100% of Dr. Perlroths outstanding equity awards will vest. The receipt of benefits specified in this paragraph is conditioned upon Dr. Perlroths execution and non-revocation of a customary release of claims with us.
John Borgeson
John Borgeson has been our Chief Financial Officer since June 2014, initially on a consulting basis. In September 2018, we entered into an amended employment agreement with Mr. Borgeson in connection with this offering. Mr. Borgesons annual base salary is currently $306,168 and will increase to $393,000 upon the effectiveness of the registration statement of which this prospectus forms a part. Mr. Borgeson is considered annually for a target bonus, which is currently equal to 35% of his annual base salary and will be increased to 40% of his annual base salary upon the effectiveness of the registration statement of which this prospectus forms a part.
Mr. Borgesons amended employment agreement also provides that if his employment is terminated without cause, or he terminates his employment for good reason (as such terms are defined in his amended employment agreement), he is entitled to (1) a lump sum payment equal to 9 months base salary (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction (as defined in his amended employment agreement), 12 months base salary), (2) a lump sum payment equal to his maximum target annual bonus, prorated for the portion of the fiscal year elapsed as of the termination date (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction, 100% of his maximum target annual bonus, without proration), (3) if he elects to continue receiving health care and dental coverage under COBRA, our payment of the premiums for such continuation coverage for up to 9 months (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction, for up to 12 months), or if such payments are not permitted by law, monthly taxable payments to him in lieu of our payment of such COBRA premiums, and (4) accelerated vesting of his outstanding equity awards equal to the portion of the equity awards that would have vested had he continued to be employed by us during the 12-month period after his termination (or if his termination occurs on or within 24 months of a corporate transaction, 100% of the unvested portions of the equity awards). In addition, if on the date 24 months immediately following the consummation of any corporate transaction Mr. Borgeson is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then 100% of Mr. Borgesons outstanding equity awards will vest. The receipt of benefits specified in this paragraph is conditioned upon Mr. Borgesons execution and non-revocation of a customary release of claims with us.
Hong Liang
Dr. Hong Liang has been our Senior Vice President, Discovery Medicine since October 2017, prior to which she had served as our Vice President, Discovery Medicine since December 2015. In September 2018, we entered
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into an amended employment agreement with Dr. Liang in connection with this offering. Dr. Liangs annual base salary is currently $285,000 and will increase to $355,000 upon the effectiveness of the registration statement of which this prospectus forms a part. Dr. Liang is considered annually for a target bonus, which is equal to 35% of her annual base salary.
Dr. Liangs employment agreement also provides that if her employment is terminated without cause, or she terminates her employment for good reason (as such terms are defined in her amended employment agreement), she is entitled to (1) a lump sum payment equal to 9 months base salary, (2) a lump sum payment equal to her maximum target annual bonus, prorated for the portion of the fiscal year elapsed as of the termination date (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction (as defined in her employment agreement), 75% of her maximum target annual bonus, without proration), (3) if she elects to continue receiving health care and dental coverage under COBRA, our payment of the premiums for such continuation coverage for up to 9 months or if such payments are not permitted by law, monthly taxable payments to her in lieu of our payment of such COBRA premiums, and (4) accelerated vesting of her outstanding equity awards equal to the portion of the equity awards that would have vested had she continued to be employed by us during the 12-month period after her termination (or if her termination occurs on or within 24 months of a corporate transaction, 100% of the unvested portions of the equity awards). In addition, if on the date 24 months immediately following the consummation of any corporate transaction Dr. Liang is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then 100% of Dr. Liangs outstanding equity awards will vest. The receipt of benefits specified in this paragraph is conditioned upon Dr. Liangs execution and non-revocation of a customary release of claims with us.
Jason Ehrlich
In August 2018, we entered into an employment agreement with Dr. Ehrlich in connection with the commencement of his employment with us. In September 2018, we entered into an amended employment arrangement with Dr. Ehrlich in connection with this offering. Dr. Ehrlichs annual base salary is currently $440,000, and Dr. Ehrlich is considered annually for a target bonus equal to 40% of his annual base salary. In connection with the commencement of his employment, Dr. Ehrlich received the option and restricted stock unit award described under the 2018 Executive Officer Equity Awards section above. In addition, in connection with his hiring, Dr. Ehrlich received a $200,000 cash retention bonus, which will be repayable by him to us on a pro-rated basis if his employment is terminated by us for cause or by him without good reason (as such terms are defined in his amended employment agreement) before the second anniversary of the effective date of his original employment agreement. Dr. Ehrlich is also eligible to receive an allowance of up to $10,000 per month for the first 36 months following his start date for his housing and travel expenses incurred while he is employed by us.
Dr. Ehrlichs amended employment agreement also provides that if his employment is terminated without cause, or he terminates his employment for good reason, he is entitled to (1) a lump sum payment equal to 9 months base salary (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction (as defined in his amended employment agreement) and ending 24 months after a corporate transaction, 12 months base salary), (2) a lump sum payment equal to his maximum target annual bonus, prorated for the portion of the fiscal year elapsed as of the termination date (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction, 100% of his maximum target annual bonus, without proration), (3) if he elects to continue receiving health care and dental coverage under COBRA, our payment of the premiums for such continuation coverage for up to 9 months (or if the termination occurs during the period beginning 3 months prior to and ending 24 months after a corporate transaction, for up to 12 months), or if such payments are not permitted by law, monthly taxable payments to him in lieu of our payment of such COBRA premiums, and (4) accelerated vesting of his outstanding equity awards equal to the portion of the equity awards that would have vested had he continued to be employed by us during the 12-month period after his termination (or if his termination occurs on or within 24 months of a corporate transaction, 100% of the unvested portions of the equity awards). In addition, if on the
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date 24 months immediately following the consummation of any corporate transaction Dr. Ehrlich is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then 100% of Dr. Ehrlichs outstanding equity awards will vest. The receipt of benefits specified in this paragraph is conditioned upon Dr. Ehrlichs execution and non-revocation of a customary release of claims with us.
Employee Benefit Plans
2015 Share Incentive Plan
Our board of directors adopted our 2015 Share Incentive Plan, or the 2015 Plan, in September 2015. Our stockholders approved the 2015 Plan in September 2015. Our 2015 Plan allows for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and our parent and subsidiary corporations employees, and for the grant of nonstatutory stock options and restricted stock to employees, directors, and consultants of ours or any of our parents, subsidiaries, or affiliates and to members of our board of directors.
Authorized Shares
As of June 30, 2018, 398,693 shares of our common stock were reserved for future issuance under our 2015 Plan. Our 2015 Plan will be terminated in connection with the adoption of our 2018 Equity Incentive Plan. Accordingly, no awards will be granted under the 2015 Plan following the completion of this offering, but our 2015 Plan will continue to govern outstanding awards granted thereunder. As of June 30, 2018, options to purchase 3,383,478 shares of our common stock remained outstanding under our 2015 Plan.
Plan Administration
Our board of directors or a committee of our board of directors administers our 2015 Plan. Subject to the provisions of our 2015 Plan, the administrator has the power to administer the plan, including but not limited to, the power to determine the fair market value of our common stock; to select the eligible employees, directors, and consultants to whom awards are granted; to determine the number of shares to be covered by each award; to determine the terms and conditions of any award; to amend any outstanding award; to determine whether and under what circumstances an option may be settled in cash instead of shares; to implement and establish the terms and conditions of a program whereby outstanding options (1) are exchanged for options with a lower exercise price or restricted stock or (2) are amended to decrease the exercise price as a result of a decline in the fair market value of our common stock; and to construe and interpret the terms of our 2015 Plan, any award agreement, and any other agreement related to an award. The administrators interpretations and decisions will be final and binding on all participants.
Options
Options may be granted under our 2015 Plan. The exercise price per share of all options is determined by the administrator, but the exercise price per share of incentive stock options must equal at least 100% of the fair market value per share of our common stock on the date of grant. The term of an option may not exceed 10 years. With respect to any participant who owned 10% of the voting power of all classes of outstanding stock of ours or any parent or subsidiary of ours as of the grant date, the term of an incentive stock option granted to such participant must not exceed five years and the exercise price per share of such incentive stock option must be at least 110% of the fair market value per share of our common stock on the date of grant, as determined by the administrator. The administrator determines the terms and conditions of options.
The award agreements for options granted under our 2015 Plan generally provide that if a participants employment is terminated before a change in control (as defined in the award agreement) by us other than for cause (as defined in the award agreement), death, or disability or by the participant for good reason (as defined in the award agreement), then the option will immediately vest to the extent the option would have vested had the participant continued to be employed by us for 12 months. In addition, the award agreements for options granted under our 2015 Plan generally also provide that options will become fully vested (1) 24 months after a change in
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control if the participant is providing services to the acquiring company as either an employee or a consultant on that date or (2) upon termination of the participants employment within 24 months after a change in control either by us other than for cause, death, or disability or by the participant for good reason.
After termination of a participants service, he or she will be able to exercise the vested portion of his or her option for the period of time stated in his or her award agreement. The award agreements for options granted under our 2015 Plan generally provide that options will remain exercisable until the earliest of: (1) 18 months after the participants death if he or she dies during his or her continuous service or within three months after termination of service; (2) 12 months after termination due to disability; (3) three months after termination of service for any other reason, subject to extension in certain circumstances due to the exercise of the option being prevented by applicable laws; (4) the options expiration date; and (5) the 10 th anniversary of the options grant date. In no event will an option be exercisable after the expiration of its term.
Restricted Stock
Awards of restricted stock may be granted under our 2015 Plan. Restricted stock awards are grants of shares of common stock that vest in accordance with terms and conditions established by the administrator. The administrator determines the number of shares of restricted stock awarded to any employee, director or consultant and, subject to the provisions of our 2015 Plan, determines the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally have voting and dividend rights with respect to such shares upon grant without regard to vesting. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Non-Transferability of Awards
Unless our administrator provides otherwise, our 2015 Plan generally does not allow for the transfer of awards and only the recipient of an award will be permitted to exercise an award during his or her lifetime.
Certain Adjustments
In the event of certain changes in our capitalization, the administrator will make proportionate adjustments to the number and class of shares that may be delivered under our 2015 Plan and/or the number, class and price of shares covered by each outstanding award.
Liquidation or Dissolution
In the event of our proposed liquidation or dissolution, each award will terminate immediately prior to the completion of such proposed transaction, unless otherwise determined by the administrator.
Corporate Transaction
Our 2015 Plan provides that, unless otherwise described in an award agreement, in the event of a corporate transaction (as defined in our 2015 Plan), each outstanding option will either be (1) assumed or an equivalent option or right will be substituted by the successor corporation (or a parent or subsidiary of the successor corporation), or (2) terminated in exchange for a payment of cash, securities and/or other property equal to the excess of the fair market value of the portion of the shares underlying the portion of the option that is vested and exercisable immediately prior to the consummation of the corporate transaction over the per share exercise price of the option. If the successor corporation (or a parent or subsidiary of the successor corporation) does not agree to such assumption, substitution, or exchange, each such option will terminate upon the completion of the corporate transaction. Unless a participants award agreement, employment agreement or other written agreement provides otherwise, if the corporate transaction constitutes a triggering event (as defined in our 2015 Plan) and any outstanding option held by a participant is to be terminated (in whole or in part), each such option will become fully vested and exercisable before the completion of the triggering event at such time and on such conditions as the administrator determines. The administrator will notify the participant that the option will terminate at least five days before the date the option terminates.
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Amendment or Termination
Our board of directors may amend or terminate our 2015 Plan at any time, provided that such action does not materially and adversely affect a participants rights under outstanding awards without such participants consent. As noted above, in connection with the adoption of our 2018 Equity Incentive Plan, our 2015 Plan will be terminated and no further awards will be granted thereunder. All outstanding awards will continue to be governed by their existing terms.
2018 Equity Incentive Plan
Our board of directors has adopted, and we expect our stockholders to approve, a 2018 Equity Incentive Plan, or the 2018 Plan, to be effective prior to the effectiveness of the registration statement of which this prospectus forms a part. Our 2018 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporations employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees and consultants of ours or any of our parent or subsidiary corporations and to members of our board of directors.
Authorized Shares
We have reserved a total of 4,300,000 shares of our common stock for issuance pursuant to our 2018 Plan plus (1) those shares that, as of the effective date of the registration statement relating to the offering, were reserved but unissued under our 2015 Plan and were not subject to awards granted thereunder and (2) shares of our common stock subject to stock options, restricted stock units, or similar awards granted under the 2015 Plan or our 2009 Option and Profits Interest Plan that, on or after the effectiveness of the registration statement of which this prospectus forms a part, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by us for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by us due to failure to vest, (provided that the maximum number of shares that may be added to our 2018 Plan pursuant to (1) and (2) is 3,800,000 shares). The number of shares that will be available for issuance under our 2018 Plan also will include an annual increase on the first day of each fiscal year beginning in 2019, equal to the least of:
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4,300,000 shares; |
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4% of the outstanding shares of common stock as of the last day of the immediately preceding year; and |
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such other amount as our board of directors may determine. |
The shares may be authorized, but unissued or reacquired shares of common stock.
If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units, or performance shares, is forfeited to or repurchased due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under our 2018 Plan. With respect to stock appreciation rights, only the net shares actually issued will cease to be available under our 2018 Plan and all remaining shares under stock appreciation rights will remain available for future grant or sale under our 2018 Plan. Shares that have actually been issued under our 2018 Plan under any award will not be returned to our 2018 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares, or performance units are repurchased or forfeited, such shares will become available for future grant under our 2018 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding obligations related to an award will become available for future grant or sale under our 2018 Plan. To the extent an award is paid out in cash rather than shares, such cash payment will not result in a reduction in the number of shares available for issuance under our 2018 Plan.
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Plan Administration
Our board of directors and compensation committee have full but non-exclusive authority to administer our 2018 Plan. In addition, if desirable, we may structure transactions under our 2018 Plan to be exempt under Rule 16b-3 of the Exchange Act. Subject to the provisions of our 2018 Plan, the administrator has the power to administer our 2018 Plan and make all determinations deemed necessary or advisable for administering our 2018 Plan, including, but not limited to, the power to:
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interpret the terms of our 2018 Plan and awards granted under it; |
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select the eligible employees, consultants, and directors who receive awards; |
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create, amend, and revoke rules relating to the 2018 Plan, including creating sub-plans; |
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determine the terms of awards, including the exercise price, the number of shares subject to an award, the exercisability of awards, and the form of consideration, if any, payable upon exercise; |
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amend existing awards; |
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institute and determine the terms of an exchange program by which (1) outstanding awards are surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price and/or different terms, awards of a different type and/or cash, (2) participants have the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator, or (3) the exercise price of an outstanding award is increased or reduced; and |
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make all other determinations necessary or advisable for administering our 2018 Plan. |
The administrators decisions, interpretations, and other actions will be final and binding on all participants.
Stock Options
We will be able to grant stock options under our 2018 Plan. The per share exercise price of options granted under our 2018 Plan must be equal to at least the fair market value of a share of our common stock on the grant date of the award. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns more than 10% of the voting power of all classes of stock of ours or any of our parent or subsidiary corporations, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value of a share of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares, or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of a participant, he or she may exercise his or her option for the period of time stated in his or her award agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of our 2018 Plan, the administrator determines the other terms of options, including any vesting and exercisability requirements, and treatment of the award upon the participants termination of service. Options granted under our 2018 Plan generally will be subject to the following special vesting acceleration provisions in connection with the participants termination of employment, subject to the participants timely execution and delivery of a release and waiver of claims agreement:
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If, at any time before a change in control, the participants employment is terminated by us without cause and other than for death or disability, or by the participant with good reason, then that number of shares subject to the option as would have vested in the 12-month period following the employment termination date, had the participant continued to be employed by us for such period, will vest, effective as of the date the release becomes effective. |
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If within 24 months following a change in control, the participants employment is terminated by us without cause and other than for death or disability, or by the participant for good reason, then 100% of |
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the shares subject to the option that remain unvested will vest and become exercisable in full, effective as of the date the release becomes effective. |
Stock Appreciation Rights
We will be able to grant stock appreciation rights under our 2018 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the grant date and the exercise date. Stock appreciation rights may not have a term exceeding ten years. After the termination of service of the participant, he or she may exercise his or her stock appreciation right for the period of time stated in his or her award agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of our 2018 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock
We will be able to grant restricted stock under our 2018 Plan. Restricted stock awards are grants of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director, or consultant and, subject to the provisions of our 2018 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest will be subject to our right of repurchase or forfeiture.
Restricted Stock Units
We will be able to grant restricted stock units under our 2018 Plan. Each restricted stock unit represents an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2018 Plan, the administrator determines the terms and conditions of restricted stock units, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of company-wide, divisional, business unit, or individual goals (such as continued employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion. The administrator has the discretion to pay earned restricted stock units in the form of cash, in shares of our common stock, or in some combination thereof. The administrator also has the discretion to accelerate the time at which any restrictions will lapse or be removed. Restricted stock units granted under our 2018 Plan generally will be subject to the following special vesting acceleration provisions in connection with the participants termination of employment, subject to the participants timely execution and delivery of a release and waiver of claims agreement:
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If, at any time before a change in control, the participants employment is terminated by us without cause and other than for death or disability, or by the participant with good reason, then that number of restricted stock units as would have vested in the 12-month period following the employment termination date, had the participant continued to be employed by us for such period, will vest, effective as of the date the release becomes effective. |
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If within 24 months following a change in control, the participants employment is terminated by us without cause and other than for death or disability, or by the participant for good reason, then 100% of the restricted stock units that remain unvested will vest, effective as of the date the release becomes effective. |
Performance Units and Performance Shares
We will be able to grant performance units and performance shares under our 2018 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of company-wide, divisional, business unit, or individual goals (such as continued employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator has the discretion to reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units will have an initial dollar value established by the administrator on or prior to the grant date. Performance shares will have an initial value equal to the fair market value of the underlying shares of our common stock on the grant date. The administrator has the discretion to pay earned performance units or performance shares in the form of cash, in shares of our common stock, or in some combination thereof.
Non-Employee Directors
Our 2018 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options). Our 2018 Plan includes a maximum annual limit of $500,000 (increased to $1,000,000 in connection with initial service on our board) of cash compensation and equity awards that may be paid, issued, or granted to a non-employee director in any fiscal year. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with GAAP). Any cash compensation paid or equity awards granted to a person for his or her services as an employee, or for his or her services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to our non-employee directors.
Non-Transferability of Awards
Unless the administrator provides otherwise, our 2018 Plan generally will not allow for the transfer of awards, and only the recipient of an award will be able to exercise an award during his or her lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.
Certain Adjustments
In the event of any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of our shares or other securities, or other change in our corporate structure affecting our shares, in order to prevent diminution or enlargement of the benefits or potential benefits available under our 2018 Plan, the administrator will adjust the number and class of shares that may be delivered under our 2018 Plan or the number, class and price of shares covered by each outstanding award, and any numerical share limits set forth in our 2018 Plan.
Liquidation or Dissolution
In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.
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Merger or Change in Control
Our 2018 Plan provides that in the event of a merger or change in control, as defined under our 2018 Plan, each outstanding award will be treated as the administrator determines, without a requirement to obtain a participants consent. The administrator will not be required to treat all awards, all awards held by a participant, or all awards of the same type, similarly.
In the event that a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or other vesting criteria applicable to such award will be deemed achieved at 100% of target levels and such award will become fully exercisable, if applicable, for a specified period prior to the transaction, unless specifically provided for otherwise under the applicable award agreement written agreement with the participant. The award will then terminate upon the expiration of the specified period of time. If an option or stock appreciation right is not assumed or substituted, the administrator will notify the participant in writing or electronically that such option or stock appreciation right will be 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.
In addition, in the event of a change in control, and unless otherwise agreed, each outside directors options and stock appreciation rights, if any, will vest fully and become immediately exercisable, all restrictions on his or her restricted stock and restricted stock units will lapse and all performance goals or other vesting requirements for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions met.
Options and restricted stock units granted under our 2018 Plan generally will provide that, subject to the participants timely execution and delivery of a release and waiver of claims agreement, if (1) on the date 24 months immediately following a change in control, the participant is providing services to the acquiring company as either an employee or a consultant or (2) within 24 months following a change in control, the participants employment is terminated by us without cause and other than for death or disability, or by the participant for good reason, then in either case, 100% of the portion of the award that remain unvested will vest and become exercisable (if applicable) in full, effective as of the date the release becomes effective.
Forfeiture and Clawback
All awards granted under our 2018 Plan will be subject to recoupment under any clawback policy that we are required to adopt under applicable law. In addition, the administrator may provide in an award agreement that the recipients rights, payments, and benefits with respect to such award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events. In the event of any accounting restatement, the recipient of an award will be required to repay a portion of the proceeds received in connection with the settlement of an award earned or accrued under certain circumstances.
Amendment or Termination
The administrator will have the authority to amend, suspend or terminate our 2018 Plan provided such action does not impair the existing rights of any participant. Our 2018 Plan automatically will terminate in 2028, unless we terminate it sooner.
2018 Employee Stock Purchase Plan
Our board of directors has adopted, and we expect our stockholders to approve, a 2018 Employee Stock Purchase Plan, or the ESPP, to be effective prior to the effectiveness of this offering. However, no offering period or purchase period under our ESPP will begin unless and until determined by our board of directors.
Authorized Shares
A total of 460,000 shares of our common stock will be available for sale under our ESPP. The number of shares of our common stock that will be available for sale under our ESPP also includes an annual increase on
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the first day of each fiscal year beginning for the fiscal year following the fiscal year in which the first offering period enrollment date (if any) occurs, equal to the least of:
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920,000 shares of our common stock; |
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1% of the outstanding shares of common stock as of the last day of the immediately preceding year; and |
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such other amount as the administrator may determine. |
Plan Administration
Our board of directors and compensation committee have full but non-exclusive authority to administer our ESPP and have full but non-exclusive authority to interpret the terms of our ESPP and determine eligibility to participate, subject to the conditions of our ESPP, as described below. The administrator has full and exclusive discretionary authority to construe, interpret, and apply the terms of our ESPP, to delegate ministerial duties to any of our employees, to designate separate offerings under our ESPP, to designate our subsidiaries and affiliates as participating in our ESPP, to determine eligibility, to adjudicate all disputed claims filed under our ESPP and to establish procedures that it deems necessary or advisable for the administration of our ESPP, including, but not limited to, adopting such procedures, sub-plans, and appendices to the enrollment agreement as are necessary or appropriate to permit participation in our ESPP by employees who are foreign nationals or employed outside the U.S. The administrators findings, decisions, and determinations will be final and binding on all participants to the full extent permitted by law.
Eligibility
Generally, all of our employees are eligible to participate if they are customarily employed by us, or any participating subsidiary, for at least 20 hours per week and more than five months in any calendar year. The administrator, in its discretion, may, prior to an enrollment date for all options granted on such enrollment date in an offering, determine that an employee who (1) has not completed at least two years of service (or a lesser period of time determined by the administrator) since his or her last hire date, (2) customarily works not more than 20 hours per week (or a lesser period of time determined by the administrator), (3) customarily works not more than five months per calendar year (or a lesser period of time determined by the administrator), (4) is a highly compensated employee within the meaning of Section 414(q) of the Code, and (5) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to disclosure requirements under Section 16(a) of the Exchange Act, will or will not eligible to participate in such offering period.
However, an employee may not be granted rights to purchase shares of our common stock under our ESPP if such employee:
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immediately after the grant would own capital stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock; or |
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hold rights to purchase shares of our common stock under all of our employee stock purchase plans that accrue at a rate that exceeds $25,000 worth of shares of our common stock for each calendar year. |
Offering Periods and Purchase Periods
Our ESPP includes a component that allows us to make offerings intended to qualify under Section 423 of the Code and a component that allows us to make offerings not intended to qualify under Section 423 of the Code to designated companies, as described in our ESPP. No offerings have been authorized to date by our board of directors under our ESPP. If our board of directors authorizes an offering period under our ESPP, our board of directors will be authorized to establish the duration of offering periods and purchase periods, including the starting and ending dates of offering periods and purchase periods, provided that no offering period may have a duration exceeding 27 months.
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Contributions
Our ESPP permits participants to purchase shares of our common stock through contributions (in the form of payroll deductions or otherwise to the extent permitted by the administrator) of their eligible compensation, up to an amount determined by the administrator. A participant may purchase a maximum number of shares of our common stock during a purchase period as determined by the plan administrator in accordance with the ESPP.
Exercise of Purchase Right
If our board of directors authorizes an offering and purchase period under our ESPP, amounts contributed and accumulated by the participant during any offering period will be used to purchase shares of our common stock at the end of each purchase period established by our board of directors. The purchase price of the shares will be determined by the administrator. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of our common stock. Participation ends automatically upon termination of employment with us.
Non-Transferability
A participant may not transfer rights granted under our ESPP. If our compensation committee permits the transfer of rights, it may only be done by will, the laws of descent and distribution, or as otherwise provided under our ESPP.
Merger or Change in Control
Our ESPP provides that in the event of a merger or change in control, as defined under our ESPP, a successor corporation may assume or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute for the outstanding purchase right, the offering period then in progress will be shortened, and a new exercise date will be set that will be before the date of the proposed merger or change in control. The administrator will notify each participant that the exercise date has been changed and that the participants option will be exercised automatically on the new exercise date unless prior to such date the participant has withdrawn from the offering period.
Amendment or Termination
The administrator will have the authority to amend, suspend, or terminate our ESPP, except that, subject to certain exceptions described in our ESPP, no such action may adversely affect any outstanding rights to purchase shares of our common stock under our ESPP. Our ESPP automatically will terminate in 2038, unless we terminate it sooner.
Executive Incentive Compensation Plan
In August 2018, our board of directors adopted our Executive Incentive Compensation Plan, or the Incentive Compensation Plan. Our Incentive Compensation Plan allows us to grant incentive awards, generally payable in cash, to employees selected by the administrator of the Incentive Compensation Plan, including our named executive officers, based upon performance goals established by the administrator.
Under our Incentive Compensation Plan, the administrator determines the performance goals applicable to any award, which goals may include, without limitation, goals related to research and development, regulatory milestones or regulatory-related goals, gross margin, financial milestones, new product or business development, operating margin, product release timelines or other product release milestones, publications, cash flow, procurement, savings, internal structure, leadership development, project, function or portfolio-specific milestones, license or research collaboration agreements, capital raising, initial public offering preparations, patentability and individual objectives such as peer reviews or other subjective or objective criteria. The performance goals may differ from participant to participant and from award to award.
A committee appointed by our board of directors (which, until our board of directors determines otherwise, will be our compensation committee) administers our Incentive Compensation Plan. The administrator of our
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Incentive Compensation Plan may, in its sole discretion and at any time, increase, reduce or eliminate a participants actual award, and/or increase, reduce or eliminate the amount allocated to the bonus pool for a particular performance period. The actual award may be below, at or above a participants target award, in the discretion of the administrator. The administrator may determine the amount of any increase, reduction or elimination on the basis of such factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers.
Actual awards generally will be paid in cash (or its equivalent) only after they are earned, and, unless otherwise determined by the administrator, to earn an actual award a participant must be employed by us through the date the actual award is paid. The administrator reserves the right to settle an actual award with a grant of an equity award under our then-current equity compensation plan, which equity award may have such terms and conditions, including vesting, as the administrator determines. Payment of awards occurs as soon as practicable after they are earned, but no later than the dates set forth in our Incentive Compensation Plan.
Our board of directors and the administrator have the authority to amend, suspend or terminate our Incentive Compensation Plan, provided such action does not impair the existing rights of any participant with respect to any earned awards.
401(k) Plan
We maintain a tax-qualified 401(k) retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation subject to applicable annual Code limits. All participants interests in their deferrals are 100% vested when contributed. The 401(k) plan permits us to make matching contributions and profit sharing contributions to eligible participants, although we have not made any such contributions to date. Pre-tax contributions are allocated to each participants individual account and are then invested in selected investment alternatives according to the participants directions. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan, and all contributions are deductible by us when made. The 401(k) plan also permits contributions to be made on a post-tax basis for those employees participating in the Roth 401(k) plan component.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation and bylaws, each to be effective upon completion of this offering, will provide that we will indemnify our directors and officers, and may indemnify our employees and other agents, to the fullest extent permitted by the Delaware General Corporation Law, which prohibits us from limiting the liability of our directors for the following:
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any breach of the directors duty of loyalty to us or to our stockholders; |
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acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
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unlawful payment of dividends or unlawful stock repurchases or redemptions; and |
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any transaction from which the director derived an improper personal benefit. |
If Delaware law is amended to authorize corporate action further limiting the personal liability of a director, then the liability of our directors will be limited to the fullest extent permitted by Delaware law, as so amended. Our certificate of incorporation does not eliminate a directors duty of care and, in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, remain available under Delaware law. This provision also does not affect a directors responsibilities under any other laws, such as the federal securities laws or other state or federal laws. Under our bylaws, we will also be empowered to purchase insurance on behalf of any person whom we are required or permitted to indemnify.
In addition to the indemnification required in our certificate of incorporation and bylaws, we have entered into indemnification agreements with each of our current directors, officers and some employees. These
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agreements provide for the indemnification of our directors, officers and some employees for certain expenses and liabilities incurred in connection with any action, suit, proceeding or alternative dispute resolution mechanism, or hearing, inquiry or investigation that may lead to the foregoing, to which they are a party, or are threatened to be made a party, by reason of the fact that they are or were a director, officer, employee, agent or fiduciary of us, or any of our subsidiaries, by reason of any action or inaction by them while serving as an officer, director, agent or fiduciary, or by reason of the fact that they were serving at our request as a director, officer, employee, agent or fiduciary of another entity. In the case of an action or proceeding by or in the right of us or any of our subsidiaries, no indemnification will be provided for any claim where a court determines that the indemnified party is prohibited from receiving indemnification. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors and officers liability insurance.
The limitation of liability and indemnification provisions in our certificate of incorporation and 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 stockholders 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. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of transactions since January 1, 2015 to which we have been a party in which the amount involved exceeded $120,000 and in which any of our executive officers, directors, promoters or beneficial holders of more than 5% of our capital stock had or will have a direct or indirect material interest, other than compensation arrangements which are described under the section of this prospectus captioned Executive Compensation.
Related-Person Transactions Policy
We have a formal, written policy, which will become effective on the date of effectiveness of the registration statement of which this prospectus forms a part, that our executive officers, directors (including director nominees), holders of more than 5% of any class of our voting securities and any member of the immediate family of or any entities affiliated with any of the foregoing persons, are not permitted to enter into a related-person transaction with us without the prior approval or, in the case of pending or ongoing related-person transactions, ratification of our nominating and corporate governance committee. For purposes of our policy, a related-person transaction is a transaction, arrangement or relationship where the amount exceeds $120,000, where we were, are or will be involved and in which a related-person had, has or will have a direct or indirect material interest.
Certain transactions with related persons, however, are exempted from pre-approval including, but not limited to:
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compensation of our executive officers and directors that is otherwise disclosed in our public filings with the SEC; |
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compensation, benefits and other transactions available to all of our employees generally; |
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transactions where a related-persons interest derives solely from his or her service as a director of another entity that is a party to the transaction; |
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transactions where a related-persons interest derives solely from his or her ownership of less than 10% of the equity interest in another entity that is a party to the transaction; and |
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transactions where a related-persons interest derives solely from his or her ownership of a class of our equity securities and all holders of that class received the same benefit on a pro rata basis. |
No member of the nominating and corporate governance committee may participate in any review, consideration or approval of any related-person transaction where such member or any of his or her immediate family members is the related-person. In approving or rejecting the proposed agreement, our nominating and corporate governance committee shall consider the relevant facts and circumstances available and deemed relevant to the nominating and corporate governance committee, including, but not limited to:
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the benefits and perceived benefits to us; |
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the materiality and character of the related-persons direct and indirect interest; |
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the availability of other sources for comparable products or services; |
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the terms of the transaction; and |
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the terms available to unrelated third parties under the same or similar circumstances. |
In reviewing proposed related-person transactions, the nominating and corporate governance committee will only approve or ratify related-person transactions that are in, or not inconsistent with, the best interests of us and our stockholders.
The transactions described below were consummated prior to our adoption of the formal, written policy described above, and therefore the foregoing policies and procedures were not followed with respect to the transactions. However, we believe that the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described were comparable to terms available or the amounts that would be paid or received, as applicable, in arms-length transactions.
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Sales of Securities
The following table sets forth a summary of the sale and issuance of our securities to related persons since January 1, 2015, other than compensation arrangements which are described under the sections of this prospectus captioned Management-Director Compensation and Executive Compensation. For a description of beneficial ownership see the section of this prospectus captioned Principal Stockholders.
Shares of Series B
Redeemable Convertible Preferred Stock |
Principal
Amount of 2017 Convertible Notes |
Principal
Amount of 2018 Convertible Notes |
Shares of Series B
Redeemable Convertible Preferred Stock Underlying Warrants |
|||||||||||||
5% stockholders: |
||||||||||||||||
Entities affiliated with Baker Bros. Advisors LP |
5,000,000 | $ | 3,000,000 | $ | 6,560,000 | 150,000 | ||||||||||
Dustin A. Moskovitz Trust DTD 12/27/05 |
1,000,000 | 5,000,000 | 3,000,000 | 250,000 | ||||||||||||
Executive officers and directors: |
||||||||||||||||
Felix J. Baker |
5,000,000 | 3,000,000 | 6,560,000 | 150,000 |
Series B Redeemable Convertible Preferred Stock
From September 2015 to December 2015, we issued and sold to investors, including the Dustin A. Moskovitz Trust DTD 12/27/05, or DM, and entities affiliated with Baker Bros. Advisors LP, or Baker Brothers, an aggregate of 6,792,000 shares of Series B redeemable convertible preferred stock at $5.00 per share, for aggregate proceeds of $34.0 million. DM is an owner of 5% or more of our outstanding shares of common stock on an as-converted basis. Felix J. Baker, a member of our board of directors has voting and investment power over our securities held by Baker Brothers.
2017 Convertible Notes
In August 2017, we issued and sold $10.0 million aggregate principal amount of our 2017 convertible notes and warrants to purchase shares of our Series B redeemable convertible preferred stock. The notes accrue interest at rate of 2.5% per month. Baker Brothers purchased $3.0 million aggregate principal amount of the notes and a warrant to purchase an aggregate of 150,000 shares of our Series B redeemable convertible preferred stock. DM purchased $5.0 million aggregate principal amount of the notes and a warrant to purchase an aggregate of 250,000 shares of our Series B redeemable convertible preferred stock.
2018 Convertible Notes
In February 2018, we issued and sold $33.0 million aggregate principal amount of our 2018 convertible notes. The notes accrue interest at rate of 6.0% per year. Baker Brothers and DM purchased $6.6 million and $3.0 million aggregate principal amount of the notes, respectively. Nicole Thomson, Dr. Perlroths sister, and her husband, Heath Thomson, jointly purchased a note with a principal amount of approximately $0.2 million. Other purchasers of our 2018 convertible notes included entities affiliated with Perceptive Advisors and ArrowMark Partners.
Indication of Interest
Investment entities affiliated with Baker Brothers have expressed interest in purchasing an aggregate of up to $25.0 million of shares of our common stock in this offering at the public offering price. Indications of interest are not binding commitments to purchase. The underwriters will receive the same underwriting discounts and commissions on any shares purchased by Baker Brothers as they will on any other shares sold to the public in this offering.
Stock Repurchases
In June 2015, we purchased 744,843 shares of our common stock from Stephen Charles, a founder and greater than 5% stockholder, for an aggregate purchase price of $1.0 million.
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Investors Rights Agreement
We have entered into an investors rights agreement with certain of our stockholders, including Dr. Perlroth, our chief executive officer and chairman, and Baker Brothers. As of June 30, 2018, the holders of 12,385,154 shares of our common stock issuable upon conversion of outstanding redeemable convertible preferred stock, or their transferees, are entitled to rights with respect to the registration of their shares under the Securities Act. For a description of these registration rights, see the section of this prospectus titled Description of Capital StockRegistration Rights.
Voting Agreement
The election of the members of the board of directors is governed by a voting agreement with certain of our stockholders, including Dr. Perlroth, our chief executive officer and chairman, and Baker Brothers. The parties to the voting agreement have agreed, subject to certain conditions, to vote their shares to elect as directors as follows:
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one nominee designated by Baker Brothers, currently Dr. Baker; |
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one nominee designated by the majority vote of our Series B redeemable convertible preferred stock, currently Dr. Levy; |
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two nominees, one of which must be our chief executive officer, designated by the majority vote of our common stock, currently Dr. Perlroth and Dr. Dahiyat; and |
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one nominee designated by the holders of a majority of the common stock issued or issuable upon the conversion of the redeemable convertible preferred stock, currently Mr. Profusek. |
Upon the consummation of this offering, the obligations of the parties to the voting agreement to vote their shares to elect these nominees will terminate, and none of our stockholders will have any special rights regarding the nomination, election or designation of members of the board of directors. Our existing certificate of incorporation contains provisions that correspond to the voting agreement; however, the certificate of incorporation that will be effective immediately prior to the closing of this offering will not include such provisions.
Other Transactions
We have entered into employment agreements with certain of our executive officers that, among other things, provide for certain severance and change of control benefits. For a description of these agreements, see the section of this prospectus titled Executive CompensationExecutive Employment Arrangements.
We have granted stock options and restricted stock awards to our executive officers and to certain of our non-executive directors and one of our former non-executive directors. For a description of these options, see the sections titled ManagementDirector Compensation and Executive Compensation.
We have entered into indemnification agreements with our directors and executive officers. For a description of these agreements, see the section of this prospectus titled ManagementLimitation of Liability and Indemnification Matters.
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The following table sets forth the beneficial ownership of our common stock as of August 31, 2018 by:
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each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock; |
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each of the named executive officers; |
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each of our directors; and |
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all of our executive officers and directors as a group. |
The percentage of beneficial ownership prior to the offering shown in the table is based upon 26,570,062 shares of common stock outstanding as of August 31, 2018, assuming the automatic conversion of all outstanding shares of redeemable convertible preferred stock into an aggregate of 12,385,154 shares of common stock; the conversion of $13.1 million principal amount and accrued interest of our 2017 convertible notes as of August 31, 2018 at a conversion price of $5.00 per share; the conversion of $34.1 million principal amount and accrued interest of our 2018 convertible notes as of August 31, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering; and the issuance of 500,000 shares of common stock issuable upon the exercise of warrants to purchase 500,000 shares of redeemable convertible preferred stock outstanding as of June 30, 2018 at an exercise price of $0.01 per share. The percentage of beneficial ownership after this offering shown in the table is based on 35,570,062 shares of common stock outstanding after the closing of this offering, assuming no exercise of the underwriters overallotment option and no purchase of shares in this offering by investment entities affiliated with Perceptive Life Sciences Master Fund, Ltd., or Perceptive, Baker Brothers and certain other existing securityholders.
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. 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 take into account shares of common stock issuable pursuant to the exercise or conversion of stock options or warrants or convertible notes that are either immediately exercisable or convertible or exercisable or convertible on or before the 60th day after August 31, 2018. Certain of the options granted to our named executive officers may be exercised prior to the vesting of the underlying shares. These shares are deemed to be outstanding and beneficially owned by the person holding those options 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 Kodiak Sciences Inc., 2631 Hanover Street, Palo Alto, California 94304.
Shares Beneficially
Owned Prior to the Offering |
Shares Beneficially
Owned After the Offering |
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Name of Beneficial Owner |
Number of
Shares |
Percentage |
Number of
Shares |
Percentage | ||||||||||||
5% and Greater Stockholders: |
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Entities affiliated with Baker Bros. Advisors LP (1) |
6,543,356 | 24.6 | % | 6,543,356 | 18.4 | % | ||||||||||
Victor Perlroth, M.D. (2) |
5,011,538 | 18.2 | 5,011,538 | 13.7 | ||||||||||||
Stephen Charles (3) |
2,000,000 | 7.5 | 2,000,000 | 5.6 | ||||||||||||
Dustin A. Moskovitz Trust DTD 12/27/05 (4) |
2,839,321 | 10.7 | 2,839,321 | 8.0 | ||||||||||||
Perceptive Life Sciences Master Fund, Ltd. (5) |
1,386,179 | 5.2 | 1,386,179 | 3.9 | ||||||||||||
Named Executive Officers and Directors: |
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Victor Perlroth, M.D. (2) |
5,011,538 | 18.2 | 5,011,538 | 13.7 | ||||||||||||
John Borgeson (6) |
288,679 | 1.1 | 288,679 | * | ||||||||||||
Hong Liang, Ph.D. (7) |
132,581 | * | 132,581 | * | ||||||||||||
Jason Ehrlich, M.D., Ph.D. |
| * | | * | ||||||||||||
Felix J. Baker, Ph.D. (1) |
6,543,356 | 24.6 | 6,543,356 | 18.4 | ||||||||||||
Bassil I. Dahiyat, Ph.D. |
| * | | * | ||||||||||||
Richard S. Levy, M.D. |
| * | | * | ||||||||||||
Robert A. Profusek |
| * | | * | ||||||||||||
All executive officers and directors as a group (8 persons) (8) |
11,976,154 | 43.2 | 11,976,154 | 32.6 |
* |
Represents ownership of less than 1%. |
(1) |
The shares of common stock beneficially owned by Baker Bros. Advisors LP, or BBA, are held by the following stockholders: (a) 372,792 shares of common stock owned by 667, L.P., or 667, (b) 11,184 shares of common stock underlying warrants issued to 667 that are exercisable within 60 days of August 31, 2018, (c) 58,696 shares of common stock underlying 2017 convertible notes held by 667 that are convertible within 60 days of August 31, 2018, (d) 61,397 shares of common stock underlying 2018 convertible notes held by 667 that are convertible within 60 days of August 31, 2018, (e) 4,627,208 shares of common stock owned by Baker Brothers Life Sciences, L.P., or BBLS, (f) 138,816 shares of common stock underlying warrants issued to BBLS that are exercisable within 60 days of August 31, 2018, (g) 728,555 shares of common stock underlying 2017 convertible notes held by BBLS that are convertible within 60 days of August 31, 2018, and (h) 544,708 shares of common stock underlying 2018 convertible notes held by BBLS that are convertible within 60 days of August 31, 2018. If the investment entities affiliated with BBA purchase a number of shares in this offering equal to that for which they have expressed interest, we anticipate that, upon completion of this offering, they collectively would beneficially own shares representing approximately 23.4% of our common stock (or 22.6% if the underwriters exercise their overallotment option in full) in the aggregate (assuming a purchase price of $14.00 per share, the midpoint of the range set forth on the cover of this prospectus). BBA is the management company and investment adviser to 667 and BBLS and may be deemed to beneficially own all of the securities held by 667 and BBLS. Baker Bros. Advisors (GP) LLC, or BBA-GP, is the sole general partner of BBA. Felix J. Baker, a member of our board of directors, and Julian C. Baker have voting and investment power over our securities held by each of 667 and BBLS, as principals of BBA-GP. Dr. Baker, BBA and BBA-GP disclaim beneficial ownership of our securities held by 667 and BBLS, except to the extent of their pecuniary interest therein. BBAs address is 860 Washington Street, 3rd Floor, New York, New York 10014. |
(2) |
Consists of (a) 4,111,538 shares of common stock owned by Dr. Perlroth, and (b) 900,000 shares subject to options held by Dr. Perlroth that are immediately exercisable or exercisable within 60 days of August 31, 2018. |
(3) |
Consists of 2,000,000 shares of common stock owned by Dr. Charles. Dr. Charles was a cofounder of our company. |
(4) |
Consists of (a) 1,000,000 shares of common stock owned by Dustin A. Moskovitz Trust DTD 12/27/05, or DM, (b) 250,000 shares of common stock underlying warrants issued to DM that are exercisable within 60 days of August 31, 2018, (c) 1,312,086 shares of common stock underlying 2017 convertible notes held by DM that are convertible within 60 days of August 31, 2018 and (d) 277,235 shares of common stock underlying 2018 convertible notes held by DM that are convertible within 60 days of August 31, 2018. |
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(5) |
Consists of 1,386,179 shares of common stock underlying 2018 convertible notes held by Perceptive that are convertible within 60 days of August 31, 2018. If the investment entities affiliated with Perceptive purchase a number of shares in this offering equal to that for which they have expressed interest, we anticipate that, upon completion of this offering, they collectively would beneficially own shares representing approximately 8.9% of our common stock (or 8.6% if the underwriters exercise their overallotment option in full) in the aggregate (assuming a purchase price of $14.00 per share, the midpoint of the range set forth on the cover of this prospectus). Perceptive Advisors LLC, or Perceptive Advisors, serves as the investment manager to Perceptive Life Sciences Master Fund, Ltd., or Perceptive, and may be deemed to beneficially own the securities directly held by Perceptive. Joseph Edelman is the managing member of Perceptive Advisors and may be deemed to beneficially own the securities directly held by Perceptive. The address for Perceptive is 51 Astor Place, 10th Floor, New York, New York 10003. |
(6) |
Consists of (a) 170,899 shares of common stock owned by Mr. Borgeson and (b) 117,780 shares subject to options held by Mr. Borgeson that are immediately exercisable or exercisable within 60 days of August 31, 2018. |
(7) |
Consists of (a) 20,000 shares of common stock held by Dr. Liang and (b) 112,581 shares subject to options held by Dr. Liang that are immediately exercisable or exercisable within 60 days of August 31, 2018. |
(8) |
Consists of (a) 9,302,437 shares of common stock held by our current directors and executive officers and entities affiliated with certain of our current directors and executive officers, (b) 1,130,361 shares of common stock issuable pursuant to stock options held by such directors and officers that are exercisable within 60 days of August 31, 2018, (c) 150,000 shares of common stock issuable pursuant to warrants that are exercisable within 60 days of August 31, 2018, (d) 787,251 shares of common stock underlying 2017 convertible notes that are convertible within 60 days of August 31, 2018, and (e) 606,105 shares of common stock underlying 2018 convertible notes that are convertible within 60 days of August 31, 2018. |
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This section provides a summary of the rights of our common stock and preferred stock. This summary is not complete. For more detailed information, please see our certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.
Upon the closing of this offering and the filing of our certificate of incorporation to be effective immediately prior to this offering, our authorized capital stock will consist of 490,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
Immediately prior to the closing of this offering, all the outstanding shares of redeemable convertible preferred stock as of June 30, 2018 will automatically convert into an aggregate of 12,385,154 shares of common stock. Immediately following the closing of this offering and after giving effect to the conversion of redeemable convertible preferred stock into common stock, warrants to purchase an aggregate of 500,000 shares of common stock are expected to be exercised.
Common Stock
Outstanding Shares
Based on 7,964,234 shares of common stock outstanding as of June 30, 2018, the conversion of redeemable convertible preferred stock outstanding as of June 30, 2018 into an aggregate of 12,385,154 shares of common stock upon the completion of this offering, the conversion of our convertible notes (assuming conversion of $12.5 million principal amount and accrued interest of our 2017 convertible notes as of June 30, 2018 at a conversion price of $5.00 per share and the conversion of $33.8 million principal amount and accrued interest of our 2018 convertible notes as of June 30, 2018 at a conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering), the issuance of 9,000,000 shares of common stock in this offering, the issuance of 500,000 shares of common stock issuable upon exercise of warrants to purchase 500,000 shares of redeemable convertible preferred stock outstanding as of June 30, 2018 and no exercise of the underwriters option to purchase additional shares and no exercise of options, there will be 35,365,855 shares of common stock outstanding upon the closing of this offering. As of June 30, 2018, assuming the conversion of all outstanding redeemable convertible preferred stock into common stock upon the closing of this offering, the conversion of our convertible notes, and the exercise of warrants, we had approximately 90 record holders of our common stock.
Voting Rights
Each share of common stock is entitled to one vote per share on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law or our certificate of incorporation. Our certificate of incorporation and bylaws to be in effect upon the completion of this offering do not provide for cumulative voting rights. Because of this, the holders of a plurality of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose. With respect to matters other than the election of directors, at any meeting of the stockholders at which a quorum is present or represented, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at such meeting and entitled to vote on the subject matter shall be the act of the stockholders, except as otherwise required by law. The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders.
Dividends
Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. For more information see the section of this prospectus titled Dividend Policy.
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Liquidation
Upon a liquidation event, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.
Rights and Preferences
Holders of common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate 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, upon payment and delivery in accordance with the underwriting agreement, will be, fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, our board of directors will have the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing change in our control or other corporate action. Upon closing of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.
Warrants
As of June 30, 2018, 500,000 shares of our Series B redeemable convertible preferred stock were issuable upon exercise of outstanding warrants to purchase shares of Series B redeemable convertible preferred stock with an exercise price of $0.01 per share. Upon the conversion of the Series B redeemable convertible preferred stock, the warrants will convert to warrants to purchase 500,000 shares of common stock at an exercise price of $0.01 per share. The warrants provide for the adjustment of the number of shares issuable upon the exercise of the warrants in the event of stock splits, recapitalizations, reclassifications and consolidations. The outstanding warrants are expected to be exercised immediately following the closing of this offering. The outstanding warrants will terminate as of August 11, 2022, if unexercised.
These warrants have a net exercise provision under which their holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our stock at the time of exercise of the warrants after deduction of the aggregate exercise price. These warrants contain provisions for adjustment of the exercise price and number of shares issuable upon the exercise of warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications and consolidations.
Registration Rights
Under our investors rights agreement, as amended, following the closing of this offering, the holders of approximately 12,385,154 shares of common stock issuable upon conversion of outstanding redeemable convertible preferred stock, or their transferees, have the right to require us to register the offer and sale of their shares, which we refer to as registration rights. Additionally, the holders of 500,000 shares of common stock
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issuable upon exercise of warrants to purchase common stock, 2,497,722 shares of common stock issuable upon conversion of the 2017 convertible notes (assuming conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share) and 3,018,745 shares of common stock issuable upon conversion of the 2018 convertible notes (assuming conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering), or their transferees, have registration rights.
Demand Registration Rights
At any time after six months after the date of this prospectus, the holders of at least a majority of the shares having demand registration rights have the right to demand that we use best efforts to file a registration statement for the registration of the offer and sale of at least such number of shares with anticipated offering proceeds in excess of $30 million. We are only obligated to file up to two registration statements in connection with the exercise of demand registration rights. These registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under certain circumstances and our ability to defer the filing of a registration statement with respect to an exercise of such demand registration rights for up to 180 days under certain circumstances.
Form S-3 Registration Rights
At any time after we are qualified to file a registration statement on Form S-3, a stockholder with registration rights has the right to demand that we file a registration statement on Form S-3 so long as the aggregate number of shares to be offered and sold under such registration statement on Form S-3 is at least $10 million. We are not obligated to file any registration statements within 180 days of a registration statement that we propose. These investor registration rights are subject to specified conditions and limitations, including our ability to defer the filing of a registration statement with respect to an exercise of such Form S-3 registration rights for up to 180 days under certain circumstances.
Piggyback Registration Rights
At any time immediately prior to the closing of this offering, if we propose to register the offer and sale of any of our securities under the Securities Act either for our own account or for the account of other stockholders, a stockholder with registration rights will have the right, subject to certain exceptions, to include their shares of common stock in the registration statement. These registration rights are subject to specified conditions and limitations, and any proposed offering in connection therewith may be terminated or withdrawn by us at our sole discretion.
Expenses of Registration
We will pay all expenses relating to any demand registrations, Form S-3 registrations and piggyback registrations, other than underwriting discounts and selling commissions.
Termination
The registration rights terminate upon the earlier of (1) the date that is three years after the closing of this offering and (2) as to a given holder of registration rights, when such holder of registration rights can sell all of such holders registrable securities in a three month-period pursuant to Rule 144 promulgated under the Securities Act.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a publicly held Delaware corporation from engaging in a business combination with any interested stockholder
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for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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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 number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
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on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
Section 203 defines a business combination to include:
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any merger or consolidation involving the corporation and the interested stockholder; |
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any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; |
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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; |
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any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; and |
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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 who, together with the persons affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Certificate of Incorporation and Bylaws
Provisions of our certificate of incorporation and bylaws 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 certificate of incorporation and bylaws will:
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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; |
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provide that the authorized number of directors may be changed only by resolution of the board of directors, subject to the rights of any holders of preferred stock; |
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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; |
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divide our board of directors into three classes, each of which stands for election once every three years; |
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provide that a director may only be removed from the board of directors by the stockholders for cause; |
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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; |
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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 meet specific requirements as to the form and content of a stockholders notice; |
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not provide for cumulative voting rights (therefore allowing the holders of a plurality 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 board of directors, the chairman of the board of directors, our chief executive officer or president (in the absence of a chief executive officer); |
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provide that stockholders will be permitted to amend certain provisions of our bylaws only upon receiving at least two-thirds of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class; and |
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provide that, unless we otherwise consent in writing, a state or federal court located within the State of Delaware shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the company, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to the company or our stockholders, (3) any action asserting a claim against the company arising pursuant to any provision of the Delaware General Corporation Law, or (4) any action asserting a claim against the company governed by the internal affairs doctrine. |
The amendment of any of these provisions would require approval by the holders of at least two-thirds of our then outstanding common stock, voting as a single class.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is The Computershare Trust Company, N.A. The transfer agent and registrars address is 250 Royall Street, Canton, Massachusetts 02021.
Listing
We have applied to have our common stock approved for quotation on the Nasdaq Global Market under the trading symbol KOD.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and although we expect that our common stock will be approved for listing on the Nasdaq Global Market, we cannot assure you that there will be an active public market for our common stock following this offering. We cannot predict what effect sales of our shares in the public market or the availability of shares for sale will have on the market price of our common stock. Future sales of substantial amounts of common stock in the public market, including shares issued upon exercise of outstanding options or warrants, or the perception that such sales may occur, however, could adversely affect the market price of our common stock and also could adversely affect our future ability to raise capital through the sale of our common stock or other equity-related securities at times and prices we believe appropriate.
Upon completion of this offering, based on our shares outstanding as of June 30, 2018 and after giving effect to the conversion of all outstanding shares of our redeemable convertible preferred stock, conversion of our convertible notes (assuming conversion of $12.5 million principal amount and accrued interest of our 2017 convertible notes as of June 30, 2018 at a conversion price of $5.00 per share and the conversion of $33.8 million principal amount and accrued interest of our 2018 convertible notes as of June 30, 2018 at an assumed conversion price of $11.20 per sharethe actual conversion price will be equal to 80% of the initial public offering price of our common stock in this offering) and the issuance of 500,000 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2018, expected to be exercised immediately following the closing of this offering, 35,365,855 shares of our common stock will be outstanding, or 36,715,855 shares of common stock if the underwriters exercise their option to purchase additional shares in full. All of the shares of common stock expected to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act unless held by our affiliates, as that term is defined in Rule 144 under the Securities Act. The remaining outstanding shares of our common stock will be deemed restricted securities as that term is defined under Rule 144. Restricted securities may be sold in the public market only if their offer and sale is registered under the Securities Act or if the offer and sale of those securities qualify for an exemption from registration, including exemptions provided by Rules 144 and 701 under the Securities Act, which are summarized below.
As a result of the lock-up agreements and market stand-off provisions described below and the provisions of Rules 144 or 701, and assuming no extension of the lock-up period and no exercise of the underwriters option to purchase additional shares, the shares of our common stock that will be deemed restricted securities will be available for sale in the public market following the completion of this offering as follows:
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no shares will be eligible for sale on the date of this prospectus; and |
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26,365,855 shares will be eligible for sale upon expiration of the lock-up agreements and market stand-off provisions described below, beginning more than 180 days after the date of this prospectus. |
We may issue shares of our common stock from time to time for a variety of corporate purposes, including in capital-raising activities through future public offerings or private placements, in connection with exercise of stock options or warrants, vesting of restricted stock units and other issuances relating to our employee benefit plans and as consideration for future acquisitions, investments or other purposes. The number of shares of our common stock that we may issue may be significant, depending on the events surrounding such issuances. In some cases, the shares we issue may be freely tradable without restriction or further registration under the Securities Act; in other cases, we may grant registration rights covering the shares issued in connection with these issuances, in which case the holders of our common stock will have the right, under certain circumstances, to cause us to register any resale of such shares to the public.
Lock-up Agreements and Market Standoff Provisions
We, our directors and officers and substantially all of the holders of our equity securities have agreed, subject to certain exceptions, not to offer, sell or transfer any common stock or securities convertible into or exchangeable or exercisable for common stock for 180 days after the date of this prospectus without first
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obtaining the written consent of Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the underwriters, or us, as applicable, after the date of this prospectus. Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated may, in their sole discretion, and subject to FINRA Rule 5131, release any of the securities subject to the lock-up agreements with the underwriters at any time. These agreements are described below under the section captioned Underwriting.
Rule 144
In general, under Rule 144, beginning 90 days after the effective date of this prospectus, a person who is not our affiliate for purposes of the Securities Act and has not been our affiliate at any time during the preceding three months will be entitled to sell any shares of our common stock that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, without being required to comply with the notice, manner of sale or public information requirements or volume limitation provisions of Rule 144. Sales of our common stock by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than one year.
In addition, under Rule 144, a person may sell shares of our common stock acquired from us immediately upon the completion of this offering, without regard to the registration requirements of the Securities Act or the availability of public information about us, if:
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the person is not our affiliate and has not been our affiliate at any time during the preceding three months; and |
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the person has beneficially owned the shares to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates. |
Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding, which will equal approximately 353,658 shares immediately after this offering, assuming no exercise of the underwriters option to purchase additional shares; and |
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the average weekly trading volume in our common stock on the Nasdaq Global Market during the four calendar weeks preceding the date of filing of a notice on Form 144 with respect to the sale. |
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. To the extent that shares were acquired from one of our affiliates, a persons holding period for the purpose of effecting a sale under Rule 144 would commence on the date of transfer from the affiliate.
Rule 701
In general, under Rule 701 a person who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been one of our affiliates during the immediately preceding 90 days may sell these shares in reliance upon Rule 144, but without being required to comply with the notice, manner of sale or public information requirements or volume limitation provisions of Rule 144. Rule 701 also permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the effective date of this prospectus before selling such shares pursuant to Rule 701.
As of June 30, 2018, there were 1,041,375 shares of our outstanding common stock issued in reliance on Rule 701 as a result of exercises of stock options. All of these shares, however, are subject to lock-up agreements or market stand-off provisions as discussed above, and, as a result, these shares will only become eligible for sale
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at the earlier of the expiration of the lock-up period or upon obtaining the consent of Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the underwriters to release all or any portion of these shares from the lock-up agreements.
Stock Options
As of June 30, 2018, options to purchase an aggregate of 3,383,478 shares of our common stock were outstanding. We intend to file one or more registration statements on Form S-8 under the Securities Act to register the offer and sale of all shares of our common stock subject to outstanding stock options and all shares issued or issuable under our stock plans. We expect to file the registration statement covering these shares after the date of this prospectus, which will permit the resale of such shares by persons who are non-affiliates of ours in the public market without restriction under the Securities Act, subject, with respect to certain of the shares, to the provisions of the lock-up agreements and market stand-off provisions described above.
Warrants
Upon completion of this offering, warrants to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $0.01 per share are expected to be exercised. See the section of this prospectus titled Description of Capital StockWarrants for additional information. Such shares issued upon exercise of the warrants may be able to be sold after the expiration of the lock-up period described above subject to the requirements of Rule 144 described above.
Registration Rights
Upon completion of this offering, the holders of approximately 18,401,621 shares of our common stock will be eligible to exercise certain rights to cause us to register their shares for resale under the Securities Act, subject to various conditions and limitations. These registration rights are described under the section of this prospectus titled Description of Capital StockRegistration Rights. Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable, and a large number of shares may be sold into the public market, which may adversely affect the market price of our common stock.
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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of our common stock acquired in this offering by a non-U.S. holder (as defined below), but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the United States Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought, and do not intend to seek, any ruling from the Internal Revenue Service, or IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction or under U.S. federal gift and estate tax rules, except to the limited extent set forth below. In addition, this discussion does not address tax considerations applicable to an investors particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
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banks, insurance companies, regulated investment companies, real estate investment trusts or other financial institutions; |
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persons subject to the alternative minimum tax or the tax on net investment income; |
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tax-exempt organizations; |
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pension plans and tax-qualified retirement plans; |
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controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; |
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brokers or dealers in securities or currencies; |
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traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
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persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below); |
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certain former citizens or long-term residents of the United States; |
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persons who hold our common stock as a position in a hedging transaction, straddle, conversion transaction or other risk reduction transaction; |
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persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment); or |
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persons deemed to sell our common stock under the constructive sale provisions of the Code. |
In addition, if a partnership, entity or arrangement classified as a partnership or flow-through entity for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership or other entity. A partner in a partnership or other such entity that will hold our common stock should consult his, her or its own tax advisor regarding the tax consequences of the ownership and disposition of our common stock through a partnership or other such entity, as applicable.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal gift or estate tax rules or under the laws of any state, local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
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Non-U.S. Holder Defined
For purposes of this discussion, you are a non-U.S. holder if you are a beneficial owner of our common stock that, for U.S. federal income tax purposes, is not a partnership or:
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an individual who is a citizen or resident of the United States; |
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a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof, or otherwise treated as such for U.S. federal income tax purposes; |
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an estate whose income is subject to U.S. federal income tax regardless of its source; or |
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a trust (1) whose administration is subject to the primary supervision of a U.S. court and that has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (2) that has made a valid election under applicable Treasury Regulations to be treated as a U.S. person. |
Distributions
As described in the section of this prospectus titled Dividend Policy, we have never declared or paid cash dividends on our common stock, and we do not anticipate paying any dividends on our common stock following the completion of this offering. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.
Subject to the discussions below on effectively connected income and Foreign Account Tax Compliance Act, or FATCA, withholding, any dividend paid to you generally will be subject to U.S. federal withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty between the United States and your country of residence. In order to receive a reduced treaty rate, you must provide the applicable withholding agent with an IRS Form W-8BEN or W-8BEN-E or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of our common stock eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds our common stock through a financial institution or other agent acting on the non-U.S. holders behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to the applicable withholding agent, either directly or through other intermediaries.
Dividends received by you that are treated as effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, such dividends are attributable to a permanent establishment or fixed base maintained by you in the United States) are generally exempt from the 30% U.S. federal withholding tax, subject to the discussion below on backup withholding and FATCA withholding. In order to obtain this exemption, you must provide the applicable withholding agent with a properly executed IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to U.S. federal withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits, subject to an applicable income tax treaty providing otherwise. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty between the United States and your country of residence. You should consult your tax advisor regarding the tax consequences of the ownership and disposition of our common stock, including any applicable tax treaties that may provide for different rules.
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Gain on Disposition of Common Stock
Subject to the discussion below regarding backup withholding and FATCA withholding, you generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:
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the gain is effectively connected with your conduct of a U.S. trade or business (and, if an applicable income tax treaty so provides, the gain is attributable to a permanent establishment or fixed base maintained by you in the United States); |
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you are an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or |
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our common stock constitutes a United States real property interest by reason of our status as a United States real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock. |
We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our U.S. and worldwide real property interests plus our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, your common stock will be treated as U.S. real property interests only if you actually (directly or indirectly) or constructively hold more than five percent of such regularly traded common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock.
If you are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the gain derived from the sale (net of certain deductions and credits) under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be subject to tax at 30% (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for the year, provided you have timely filed U.S. federal income tax returns with respect to such losses. You should consult your tax advisor regarding any applicable income tax or other treaties that may provide for different rules.
Federal Estate Tax
Our common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of his or her death will generally be includable in the decedents gross estate for U.S. federal estate tax purposes. Such stock, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
Payments of dividends on or of proceeds from the disposition of our common stock made to you may be subject to information reporting and backup withholding at a current rate of 24% unless you establish an exemption, for example, by properly certifying your non-U.S. status on a properly completed IRS Form W-8BEN
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or W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if the applicable withholding agent has actual knowledge, or reason to know, that you are a U.S. person.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance Act (FATCA)
Provisions of the Code commonly referred to as FATCA, Treasury Regulations issued thereunder and official IRS guidance generally impose a U.S. federal withholding tax of 30% on dividends on, and the gross proceeds from a sale or other disposition of our common stock, paid to a foreign financial institution (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on, and the gross proceeds from, a sale or other disposition of our common stock paid to a non-financial foreign entity (as specially defined under these rules), unless such entity provides the withholding agent with a certification identifying the substantial direct and indirect U.S. owners of the entity, certifies that it does not have any substantial U.S. owners, or otherwise establishes an exemption.
The withholding obligations under FATCA generally apply to dividends on our common stock and under current transition rules are expected to apply to the payment of gross proceeds of a sale or other disposition of our common stock made on or after January 1, 2019. The withholding tax will apply regardless of whether the payment otherwise would be exempt from U.S. nonresident and backup withholding tax, including under the other exemptions described above. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this section. Prospective investors are encouraged to consult with their own tax advisors regarding the application of FATCA withholding to their investment in, and ownership and disposition of, our common stock.
The preceding discussion of U.S. federal tax considerations is for general information only. It is not tax advice to investors in their particular circumstances. Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.
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Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:
Name |
Number of
Shares |
|||
Morgan Stanley & Co. LLC |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated |
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Barclays Capital Inc. |
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Chardan Capital Markets, LLC |
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Total |
9,000,000 | |||
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The underwriters and the representatives are collectively referred to as the underwriters and the representatives, respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters over-allotment option described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. After the initial public offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 1,350,000 additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions and estimated offering expenses payable by us. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriters name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, estimated underwriting discounts and commissions and estimated offering expenses payable by us, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase up to an additional shares of common stock.
Total | ||||||||||||
Per Share | No Exercise | Full Exercise | ||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discounts and commissions to be paid by us |
$ | $ | $ | |||||||||
Proceeds, before expenses, to us |
$ | $ | $ |
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $3.6 million. We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $35,000. The underwriters have agreed to reimburse us for certain documented out of pocket expenses incurred in connection with this offering.
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The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
We have applied to list our common stock on the Nasdaq Global Market under the trading symbol KOD.
We and all directors and officers and the holders of substantially all of our outstanding equity securities have agreed that, without the prior written consent of the representatives on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus, or the restricted period:
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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 common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; |
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file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or |
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enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, |
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, each such person agrees that, without the prior written consent of the representatives on behalf of the underwriters, such person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
Subject to certain additional limitations relating to public filings required to be or voluntarily made in connection with a transfer, the restrictions described in the immediately preceding paragraph do not apply to:
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the sale of shares to the underwriters; |
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the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the representatives have been advised in writing; |
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the issuance by us of options, restricted stock units or restricted stock awards (including the common stock issued upon the settlement or exercise thereof) pursuant to employee benefit plans described in this prospectus; |
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the filing of a registration statement on Form S-8 relating to securities granted or to be granted pursuant to any plan in effect on the date of the underwriting agreement and described in this prospectus; |
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the issuance by us of securities in connection with certain acquisitions, joint ventures, and other strategic transactions; provided that the aggregate number of shares of common stock that we may sell or issue or agree to sell or issue pursuant to this provision may not exceed 5% of the total number of shares of common stock outstanding immediately following this offering, and we will cause each recipient of such securities to execute and deliver to the representatives, a lock-up agreement on substantially the same terms as described herein. |
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shares of common stock acquired in this offering or in open market transactions after the completion of the offering of the shares; |
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transfers (1) by bona fide gift, will or intestate succession; (2) transfers to the transferors immediate family members or to a trust formed for their benefit; (3) in the case of corporations or other business entities, transfers to certain affiliated business entities and the equityholders of the corporation or other business entity; or (4) in the case of a trust, to a trustee or beneficiary of the trust; provided that the recipient also executes a lock-up agreement; |
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transfers relating to the cashless or net exercise of securities exercisable or convertible for common stock, where securities are surrendered to us to fulfill tax withholding obligations in connection with their exercise or conversion; |
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the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that such plan does not provide for the transfer of common stock during the restricted period; |
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transfers to us in accordance with (1) our repurchase rights related to a transferors employment or (2) rights of first refusal in our favor; |
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transfers pursuant to a qualified domestic order or divorce settlement; or |
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transfers pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the common stock involving a change in control. |
The representatives, in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related
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derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
Pricing of the Offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, our results of operations and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
Directed Share Program
At our request, the underwriters have reserved 5% of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to directors, officers, employees, business associates and other persons related to us. If purchased by these persons, these shares will not be subject to a lock-up restriction, except in the case of shares purchased by any director, executive officer or employee. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus.
Indications of Interest
Investment entities affiliated with certain of our principal stockholders and certain of our other existing securityholders have expressed interest in purchasing an aggregate of up to $62.5 million of shares of our common stock in this offering. Indications of interest are not binding commitments to purchase. The underwriters will receive the same underwriting discounts and commissions on any shares purchased by these investment entities as they will on any other shares sold to the public in this offering.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) |
to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
(b) |
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or |
(c) |
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an offer to the public in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of
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sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
United Kingdom
Each underwriter has represented and agreed that:
(a) |
it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (FSMA) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and |
(b) |
it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom. |
Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
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Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Hong Kong
The shares of our common stock have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares of our common stock has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
The shares of our common stock have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, Japanese Person shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares of our common stock may not be circulated or distributed, nor may the shares of our common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (2) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
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Where the shares of our common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) |
a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) |
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares of our common stock pursuant to an offer made under Section 275 of the SFA except:
(a) |
to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) |
where no consideration is or will be given for the transfer; |
(c) |
where the transfer is by operation of law; |
(d) |
as specified in Section 276(7) of the SFA; or |
(e) |
as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Solely for the purposes of its obligations pursuant to Section 309B of the SFA, we have determined, and hereby notify all relevant persons (as defined in the CMP Regulations 2018), that the shares are prescribed capital markets products (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Canada
The shares of our common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of the shares of our common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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The validity of the shares of the common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Davis Polk & Wardwell LLP, Menlo Park, California, is acting as counsel for the underwriters.
The financial statements as of December 31, 2016 and December 31, 2017 and for the years then ended included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the Companys ability to continue as a going concern as described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock offered by this prospectus. This prospectus constitutes only a part of the registration statement. Some items are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits. Statements contained in this prospectus concerning the contents of any contract or document referred to are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference facilities and the website of the SEC referred to above. We also maintain a website at www.kodiak.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
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KODIAK SCIENCES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
F-3 | ||||
Consolidated Statements of Operations and Comprehensive Loss |
F-4 | |||
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit |
F-5 | |||
F-6 | ||||
F-7 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Kodiak Sciences Inc.,
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kodiak Sciences Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders deficit and of cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Companys Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
San Jose, California
April 30, 2018
We have served as the Companys auditor since 2016.
F-2
Kodiak Sciences Inc.
(in thousands, except per share and share amounts)
December 31,
2016 |
December 31,
2017 |
June 30,
2018 |
June 30,
2018 Pro Forma |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 9,622 | $ | 1,395 | $ | 17,641 | $ | 17,641 | ||||||||
Prepaid expenses and other current assets |
568 | 200 | 465 | 465 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
10,190 | 1,595 | 18,106 | 18,106 | ||||||||||||
Restricted cash |
140 | 140 | 140 | 140 | ||||||||||||
Property and equipment, net |
1,776 | 1,509 | 1,303 | 1,303 | ||||||||||||
Deferred offering costs |
| | 2,154 | 2,154 | ||||||||||||
Other assets |
8 | | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 12,114 | $ | 3,244 | $ | 21,703 | $21,703 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities, redeemable convertible preferred stock and stockholders deficit |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 1,074 | $ | 3,356 | $ | 2,472 | $ | 2,472 | ||||||||
Accrued and other current liabilities |
1,434 | 5,802 | 2,017 | 2,017 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
2,508 | 9,158 | 4,489 | 4,489 | ||||||||||||
Convertible notes (includes $7,937 and $17,411 (unaudited) at December 31, 2017 and June 30, 2018, respectively, due to related parties) |
| 9,921 | 39,495 | | ||||||||||||
Redeemable convertible preferred stock warrant liability (includes $1,840 and $3,204 (unaudited) at December 31, 2017 and June 30, 2018, respectively, attributable to warrants held by related parties) |
| 2,300 | 4,005 | | ||||||||||||
Derivative instrument (includes $2,134 (unaudited) at June 30, 2018, attributable to related parties) |
| | 7,367 | | ||||||||||||
Capital lease obligation, noncurrent |
103 | 53 | 19 | 19 | ||||||||||||
Other liabilities |
569 | 533 | 538 | 538 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
3,180 | 21,965 | 55,913 | 5,046 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Commitments and contingencies (Note 7) |
||||||||||||||||
Redeemable convertible preferred stock, $0.0001 par value, 13,753,595 shares authorized at December 31, 2016 and 18,753,595 shares authorized at December 31, 2017 and June 30, 2018 (unaudited); 12,385,154 shares issued and outstanding at December 31, 2016 and 2017 and June 30, 2018 (unaudited); liquidation value of $50,324 at December 31, 2016 and 2017 and June 30, 2018 (unaudited); no shares authorized, issued or outstanding, pro forma (unaudited) |
50,017 | 50,017 | 50,017 | | ||||||||||||
Stockholders deficit: |
||||||||||||||||
Common stock, $0.0001 par value, 23,500,000 shares authorized at December 31, 2016 and 28,500,000 shares authorized at December 31, 2017 and June 30, 2018 (unaudited); 7,930,831, 7,936,434 and 7,964,234 (unaudited) shares issued and outstanding at December 31, 2016 and 2017 and June 30, 2018, respectively; 28,500,000 shares authorized and 25,865,855 shares issued and outstanding, pro forma (unaudited) |
1 | 1 | 1 | 3 | ||||||||||||
Additional paid-in capital |
303 | 584 | 1,424 | 109,404 | ||||||||||||
Accumulated deficit |
(41,387 | ) | (69,323 | ) | (85,652 | ) | (92,750 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders deficit |
(41,083 | ) | (68,738 | ) | (84,227 | ) | 16,657 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities, redeemable convertible preferred stock and stockholders deficit |
$ | 12,114 | $ | 3,244 | $ | 21,703 | $ | 21,703 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Kodiak Sciences Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Operating expenses |
||||||||||||||||
Research and development |
$ | 14,053 | $ | 22,022 | $ | 10,098 | $ | 7,233 | ||||||||
General and administrative |
3,098 | 3,499 | 1,687 | 3,404 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
17,151 | 25,521 | 11,785 | 10,637 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(17,151 | ) | (25,521 | ) | (11,785 | ) | (10,637 | ) | ||||||||
Interest expense (includes $914 and $1,867 (unaudited) attributable to related parties for the year ended December 31, 2017 and six months ended June 30, 2018) |
(6 | ) | (1,185 | ) | (12 | ) | (3,347 | ) | ||||||||
Other income (expense), net (includes $1,008 and $1,585 (unaudited) other expense attributable to related parties for the year ended December 31, 2017 and six months ended June 30, 2018) |
25 | (1,230 | ) | 14 | (2,345 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss and comprehensive loss |
$ | (17,132 | ) | $ | (27,936 | ) | $ | (11,783 | ) | $ | (16,329 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (2.38 | ) | $ | (3.72 | ) | $ | (1.58 | ) | $ | (2.11 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted |
7,211,360 | 7,515,336 | 7,444,612 | 7,720,967 | ||||||||||||
|
|
|
|
|
|
|
|
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Pro forma net loss per share, basic and diluted (unaudited) |
$ | (1.21 | ) | $ | (0.41 | ) | ||||||||||
|
|
|
|
|||||||||||||
Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted (unaudited) |
21,074,940 | 25,569,847 | ||||||||||||||
|
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|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Kodiak Sciences Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit
(in thousands, except share amounts)
Redeemable Convertible
Preferred Stock |
Common Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total
Stockholders Deficit |
||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
Balances at January 1, 2016 |
12,385,154 | $ | 50,017 | 7,828,908 | $ | 1 | $ | 18 | $ | (24,255 | ) | $ | (24,236 | ) | ||||||||||||||||||
Stock issued through exercise of stock options |
| | 10,674 | | 5 | | 5 | |||||||||||||||||||||||||
Vesting of early exercised stock options |
| | | | 12 | | 12 | |||||||||||||||||||||||||
Issuance of restricted stock awards |
| | 142,938 | | | | | |||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 272 | | 272 | |||||||||||||||||||||||||
Repurchase of early exercised stock options |
| | (51,689 | ) | | (4 | ) | (4 | ) | |||||||||||||||||||||||
Net loss |
| | | | | (17,132 | ) | (17,132 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balances at December 31, 2016 |
12,385,154 | 50,017 | 7,930,831 | 1 | 303 | (41,387 | ) | (41,083 | ) | |||||||||||||||||||||||
Stock issued through exercise of stock options |
| | 5,603 | | 3 | | 3 | |||||||||||||||||||||||||
Vesting of early exercised stock options |
| | | | 3 | | 3 | |||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 275 | | 275 | |||||||||||||||||||||||||
Net loss |
| | | | | (27,936 | ) | (27,936 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balances at December 31, 2017 |
12,385,154 | 50,017 | 7,936,434 | 1 | 584 | (69,323 | ) | (68,738 | ) | |||||||||||||||||||||||
Stock issued through exercise of stock options (unaudited) |
| | 300 | | | | | |||||||||||||||||||||||||
Issuance of restricted stock awards (unaudited) |
| | 27,500 | | | | | |||||||||||||||||||||||||
Stock-based compensation expense (unaudited) |
| | | | 840 | | 840 | |||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | (16,329 | ) | (16,329 | ) | |||||||||||||||||||||||
|
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|
|
|
|
|
|
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|
|
|
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|
|
|
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Balances at June 30, 2018 (unaudited) |
12,385,154 | $ | 50,017 | 7,964,234 | $ | 1 | $ | 1,424 | $ | (85,652 | ) | $ | (84,227 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Kodiak Sciences Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities |
||||||||||||||||
Net loss |
$ | (17,132 | ) | $ | (27,936 | ) | $ | (11,783 | ) | $ | (16,329 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||||||
Depreciation |
257 | 549 | 234 | 244 | ||||||||||||
Non-cash interest expense and amortization of debt discount and issuance cost |
| 1,161 | | 3,333 | ||||||||||||
Change in fair value of redeemable convertible preferred stock warrant liability |
| 1,260 | | 1,705 | ||||||||||||
Change in fair value of derivative instrument |
| | | 764 | ||||||||||||
Stock-based compensation |
272 | 275 | 138 | 749 | ||||||||||||
Changes in assets and liabilities: |
||||||||||||||||
Prepaid expense and other current assets |
270 | 368 | 425 | (265 | ) | |||||||||||
Other assets |
35 | 8 | 8 | | ||||||||||||
Accounts payable |
23 | 2,282 | 1,429 | (1,845 | ) | |||||||||||
Accrued and other current liabilities |
242 | 4,330 | 1,764 | (4,085 | ) | |||||||||||
Other liabilities |
(14 | ) | 48 | 23 | 22 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in operating activities |
(16,047 | ) | (17,655 | ) | (7,762 | ) | (15,707 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities |
||||||||||||||||
Purchase of property and equipment |
(771 | ) | (209 | ) | (42 | ) | (38 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(771 | ) | (209 | ) | (42 | ) | (38 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities |
||||||||||||||||
Payments for repurchase of early exercised stock options |
(4 | ) | | | | |||||||||||
Proceeds from issuance of convertible notes (includes $8,000 and $9,560 (unaudited) from related parties for the year ended December 31, 2017 and six months ended June 30, 2018, respectively) |
| 10,000 | | 33,000 | ||||||||||||
Deferred offering costs |
| | | (768 | ) | |||||||||||
Debt issuance cost |
| (181 | ) | | (140 | ) | ||||||||||
Principal payments of capital lease |
(62 | ) | (97 | ) | (44 | ) | (54 | ) | ||||||||
Proceeds from issuance of common stock |
5 | 3 | | | ||||||||||||
Principal payments of tenant improvement allowance payable |
(59 | ) | (88 | ) | (43 | ) | (47 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
(120 | ) | 9,637 | (87 | ) | 31,991 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
(16,938 | ) | (8,227 | ) | (7,891 | ) | 16,246 | |||||||||
Cash, cash equivalents and restricted cash, at beginning of period |
26,700 | 9,762 | 9,762 | 1,535 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash, cash equivalents and restricted cash, at end of period |
$ | 9,762 | $ | 1,535 | $ | 1,871 | $ | 17,781 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Reconciliation of cash, cash equivalents and restricted cash to statement of financial position |
||||||||||||||||
Cash and cash equivalents |
$ | 9,622 | $ | 1,395 | $ | 1,731 | $ | 17,641 | ||||||||
Restricted cash |
$ | 140 | $ | 140 | $ | 140 | $ | 140 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash, cash equivalents and restricted cash in statement of financial position |
$ | 9,762 | $ | 1,535 | $ | 1,871 | $ | 17,781 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental cash flow information: |
||||||||||||||||
Cash paid for interest |
$ | 6 | $ | 24 | $ | 12 | $ | 13 | ||||||||
Supplemental disclosures of non-cash investing and financing information: |
||||||||||||||||
Purchase of property and equipment under accounts payable and tenants improvement allowance payable |
$ | 731 | $ | | $ | | $ | | ||||||||
Acquisition of equipment through capital lease |
$ | 246 | $ | 73 | $ | 73 | $ | | ||||||||
Redeemable convertible preferred stock warrant issued in connection with convertible notes |
$ | | $ | 1,040 | $ | | $ | | ||||||||
Issuance of derivative instrument related to convertible notes payable |
$ | | $ | | $ | | $ | 6,603 | ||||||||
Unpaid deferred offering costs |
$ | | $ | | $ | | $ | 1,295 | ||||||||
Deferred offering costs paid in restricted stock awards |
$ | | $ | | $ | | $ | 91 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements
1. The Company
Kodiak Sciences Inc. (the Company) was formed as a limited liability company on June 22, 2009 under the name Oligasis LLC. The Company changed its name and converted into a corporation which was incorporated in the state of Delaware on September 8, 2015. The Company is a clinical stage biopharmaceutical company specializing in novel therapeutics to treat high-prevalence ophthalmic diseases. The Company devotes substantially all of its time and efforts to performing research and development, raising capital and recruiting personnel.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer (Lonza) and contract research organization, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies and clinical trials and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.
The Companys product candidates are in development. There can be no assurance that the Companys research and development will be successfully completed, that adequate protection for the Companys intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Companys product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.
The Company has incurred significant losses and negative cash flows from operations since inception and had an accumulated deficit of $69.3 million as of December 31, 2017 and $85.7 million (unaudited) as of June 30, 2018. The Company has historically financed its operations primarily through the sale of redeemable convertible preferred stock, convertible notes, and warrants to purchase Series B redeemable convertible preferred stock. To date, none of the Companys product candidates have been approved for sale and therefore the Company has not generated any revenue from product sales. Management expects operating losses to continue for the foreseeable future. The Company believes that its cash and cash equivalents as of December 31, 2017 and June 30, 2018, without any future financing, will not be sufficient for the Company to continue as a going concern for at least one year from the original issuance date of its annual consolidated financial statements for the year ended December 31, 2017 and interim consolidated financial statements for the period ended June 30, 2018, respectively. The Company believes that this raises substantial doubt about its ability to continue as a going concern.
As a result, the Company will be required to raise additional capital. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Companys ability to achieve its intended business objectives.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.
F-7
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The consolidated financial statements include the Companys accounts and the accounts of Kodiak Sciences Financing Corporation, the Companys direct wholly owned subsidiary, incorporated in the United States, and Kodiak Sciences GmbH, the Companys indirect wholly owned subsidiary, incorporated in Switzerland. All intercompany accounts and transactions have been eliminated. The functional and reporting currency of the Company and its subsidiaries is the U.S. dollar.
Unaudited Interim Financial Information
The accompanying consolidated balance sheet as of June 30, 2018, the consolidated statements of operations and comprehensive loss and of cash flows for the six months ended June 30, 2017 and 2018, and the consolidated statement of redeemable convertible preferred stock and stockholders deficit for the six months ended June 30, 2018 are unaudited. In the opinion of management, the unaudited data reflects all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Companys financial position as of June 30, 2018 and the results of its operations and comprehensive loss and its cash flows for the six months ended June 30, 2017 and 2018. The financial data and other information disclosed in these notes related to the six months ended June 30, 2017 and 2018 are also unaudited. The results for the six months ended June 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018, any other interim periods, or any future year or period.
Unaudited Pro Forma Information
The unaudited pro forma information as of June 30, 2018 has been prepared to give effect to (1) the automatic conversion of all of the outstanding redeemable convertible preferred stock of the Company on a one-to-one basis into 12,385,154 shares of common stock as of June 30, 2018; (2) the assumed conversion of the Companys outstanding 2017 convertible notes into 2,497,722 shares of redeemable convertible preferred stock, assuming the conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share, and the subsequent conversion to common stock on a one-to-one basis; (3) the automatic conversion of the Companys outstanding 2018 convertible notes into 3,018,745 shares of common stock, assuming the conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at a conversion price equal to 80% of the assumed initial public offering price of the Companys common stock in this offering; (4) the resulting settlement of the derivative instrument upon the conversion of the 2018 convertible notes and the estimated $7.1 million impact to accumulated deficit (assuming an initial public offering price of $14.00 per share, which is the midpoint of the range reflected on the cover of this prospectus) as a result of the fair value adjustment to the derivative and loss on extinguishment of the 2018 convertible notes; (5) the automatic conversion of warrants to purchase 500,000 shares of redeemable convertible preferred stock for warrants to purchase 500,000 shares of common stock with exercise price of $0.01 and the reclassification of the warrant liability of $4.0 million to additional paid-in capital and (6) the filing of the Companys amended and restated certificate of incorporation, which will occur immediately prior to the completion of this offering. The unaudited pro forma information does not assume any proceeds from the planned initial public offering (IPO).
The unaudited pro forma basic and diluted net loss per share for the year ended December 31, 2017, has been computed to give effect to (1) an adjustment to the denominator in the pro forma basic and diluted net loss per share calculation to (a) affect the automatic conversion of the redeemable convertible preferred stock into shares of common stock, (b) reflect the 500,000 shares of common stock related to the redeemable convertible preferred stock warrants, and (c) reflect the 2,497,722 shares of common stock related to the 2017 convertible
F-8
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
notes assuming the conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share, all as of January 1, 2017 or the date of issuance, if later, and (2) an adjustment to the numerator in the pro forma basic and diluted net loss per share calculation to (a) remove gains or losses resulting from the remeasurement of the redeemable convertible preferred stock warrant liability as the warrants will become exercisable for shares of common stock, and (b) remove the effect of the interest expense as it relates to the 2017 convertible notes. Common shares issuable upon exercise of the warrants are considered to be outstanding for unaudited pro forma basic and diluted net loss per share as they are issuable at little consideration.
The unaudited pro forma basic and diluted net loss per share for the six months ended June 30, 2018, has been computed to give effect to: (1) an adjustment to the denominator in the pro forma basic and diluted net loss per share calculation to (a) affect the automatic conversion of the redeemable convertible preferred stock into shares of common stock, (b) reflect the 500,000 shares of common stock related to the redeemable convertible preferred stock warrants and (c) reflect the 2,497,722 shares of common stock related to the 2017 convertible notes and 3,018,745 shares of common stock related to the 2018 convertible notes assuming the conversion of $12.5 million principal amount and accrued interest as of June 30, 2018 at a conversion price of $5.00 per share for the 2017 notes and the conversion of $33.8 million principal amount and accrued interest as of June 30, 2018 at a conversion price equal to 80% of the assumed initial public offering price of the Companys common stock in this offering for the 2018 notes, all as of January 1, 2017 or the date of issuance, if later, and; (2) an adjustment to the numerator in the pro forma basic and diluted net loss per share calculation to (a) remove gains or losses resulting from the remeasurement of the redeemable convertible preferred stock warrant liability as the warrants will become exercisable for shares of common stock, (b) remove the effect of the interest expense as it relates to the 2017 and 2018 convertible notes, and (c) remove losses resulting from the remeasurement of the derivative instrument related to convertible notes issued in 2018 as the underlying rights lapse in connection with the IPO. Common shares issuable upon exercise of the warrants are considered to be outstanding for unaudited pro forma basic and diluted net loss per share as they are issuable at little consideration.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and expenses during the reporting period. Such estimates include the valuation of redeemable convertible preferred stock warrant liability, derivative instruments, deferred tax assets, useful lives of property and equipment, and stock-based compensation. Actual results could differ from those estimates.
Segments
The Company operates and manages its business as one reportable and operating segment, which is the business of research and development of drugs for ophthalmic diseases. The Companys chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. All of the Companys cash and cash equivalents are held at one U.S. financial institution. Such deposits may, at times, exceed federally insured limits.
Deferred Offering Costs
Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the Companys planned IPO, are recorded on the consolidated balance sheet. The deferred offering costs will be offset against the proceeds received upon the closing of the planned IPO. In the event the planned IPO is terminated, all of the
F-9
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
deferred offering costs will be expensed within the Companys consolidated statements of operations and comprehensive loss. As of June 30, 2018, $2.2 million (unaudited) of deferred offering costs were recorded on the consolidated balance sheet. There were no deferred offering costs capitalized as of December 31, 2017.
Cash and Cash Equivalents
The Company considers all highly liquid investments with stated maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include money market funds.
Restricted Cash
As of December 31, 2016 and 2017 and June 30, 2018 (unaudited), the Company had $0.1 million of long-term restricted cash deposited with a financial institution. The entire amount is held in a separate bank account to support a letter of credit agreement related to the Companys headquarter facility lease which expires in 2023.
Fair Value of Financial Instruments
The carrying amounts of the Companys financial instruments consisting of cash and cash equivalents, accounts payable and accrued liabilities and other current liabilities, approximate fair value due to their relatively short maturities. The redeemable convertible preferred stock warrant liability and derivative instruments are carried at fair value based on unobservable market inputs.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation for acquired assets. Depreciation is computed using the straight-line method over the estimated useful lives of assets, which is generally four years for laboratory equipment, three years for computer equipment and office equipment, five years for computer software and five to seven years for furniture and fixtures. Leasehold improvements are stated at cost and amortized over the shorter of the useful life of the assets or the length of the lease. Upon sale or retirement of assets, the costs and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the assets. There have been no such impairments of long-lived assets in the years ended December 31, 2016 and 2017 and six months ended June 30, 2017 and 2018 (unaudited).
Redeemable Convertible Preferred Stock
The Company records all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The redeemable convertible preferred stock is recorded outside of permanent equity because while it is not mandatorily redeemable, in the event of certain events considered not solely within the Companys control, such as a merger, acquisition and sale of all or substantially all of the Companys assets (each, a deemed liquidation event), the redeemable convertible preferred stock will become redeemable at the option of the holders of at least a majority of the then outstanding such shares. The Company has not adjusted the carrying values of the redeemable convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when a deemed liquidation event would occur that would
F-10
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
obligate the Company to pay the liquidation preferences to holders of shares of redeemable convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a deemed liquidation event will occur.
Redeemable Convertible Preferred Stock Warrants
The Companys redeemable convertible preferred stock warrants require liability classification and accounting as the underlying redeemable convertible preferred stock is considered contingently redeemable and may obligate the Company to transfer assets to the holders at a future date upon occurrence of a deemed liquidation event. The warrants are recorded at fair value upon issuance and are subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss. The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise or expiration of the redeemable convertible preferred stock warrants, occurrence of a deemed liquidation event or conversion of redeemable convertible preferred stock into common stock.
If all outstanding shares of the series of redeemable convertible preferred stock for which the redeemable convertible preferred stock warrants are exercisable are converted to shares of common stock or any other security in connection with a qualified initial public offering (a Qualified IPO) or otherwise, then thereafter (a) the redeemable convertible preferred stock warrants shall become exercisable for such number of shares of common stock or such other security as is equal to the number of shares of common stock or such other security that each share of redeemable convertible preferred stock was converted into, multiplied by the number of shares subject to the redeemable convertible preferred stock warrants immediately prior to such conversion, and (b) the exercise price of the redeemable convertible preferred stock warrants shall automatically be adjusted to equal to the number obtained by dividing (1) the aggregate exercise price for which the redeemable convertible preferred stock warrants were exercisable immediately prior to such conversion by (2) the number of shares of common stock or such other security for which the redeemable convertible preferred stock warrants are exercisable immediately after such conversion. A Qualified IPO is the Companys first sale of common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, at a per share public offering price (prior to underwriter commissions and expenses) of at least $10.00 (as adjusted for stock splits, combinations, dividends and the like) and that results in aggregate gross cash proceeds to the Company of an amount equal to or greater than $75.0 million (before deduction of underwriting discounts, commissions and expenses).
Derivative Instruments
The convertible senior secured promissory notes issued in August 2017 (2017 convertible notes) and convertible subordinated unsecured promissory notes issued in February 2018 (2018 convertible notes) contain embedded features that provide the lenders with multiple settlement alternatives. Certain of these settlement features provide the lenders a right to a fixed number of the Companys shares upon conversion of the notes (the conversion option). Other settlement features provide the lenders the right or the obligation to receive cash or a variable number of shares upon the completion of a capital raising transaction, change of control or default of the Company (the redemption features).
The conversion options of the 2017 convertible notes and 2018 convertible notes do not meet the requirements for separate accounting as an embedded derivative. However, the redemption features of the 2017 convertible notes meet the requirements for separate accounting and are accounted for as a single, compound derivative instrument (the 2017 derivative instrument). Similarly, the redemption features of the 2018 convertible notes meet the requirements for separate accounting and are accounted for as a single, compound derivative instrument (the 2018 derivative instrument). The derivative instruments are recorded at fair value at inception and are subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss (see Note 13).
F-11
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Research and Development Expenses
Costs related to research, design and development of products are charged to research and development expense as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, including stock-based compensation, laboratory supplies, outside services and allocated overhead, including rent, equipment, depreciation and utilities.
Accrued Research and Development
The Company has entered into various agreements with contract research organizations (CROs) and contract manufacturing organizations (CMOs). The Companys research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities and other current liabilities on the balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to CROs or CMOs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the provisions of Accounting Standards Codification (ASC) 718, Compensation-Stock Compensation , which requires stock-based compensation cost to be measured at grant date, based on the fair value of the award. Prior to January 1, 2017, the fair value of the portion of the award that is ultimately expected to vest was recognized as expense over the requisite service periods in the Companys consolidated statements of operations and comprehensive loss. Upon the adoption of ASU 2016-09 for periods after January 1, 2017, the Company no longer records estimated forfeitures on share-based awards and, instead, has elected to record forfeitures as they occur.
The Company accounts for equity instruments issued to non-employees using a fair value approach. The fair value of stock options granted to non-employees is calculated at each grant date and remeasured at each reporting date using the Black-Scholes option pricing model.
Fair Value of Common Stock
The fair value of the Companys common stock is determined by the board of directors with assistance from management and external appraisers. Managements approach to estimate the fair value of the Companys common stock is consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the Practice Aid). Management considers several factors to estimate enterprise value, including significant milestones that would generally contribute to increases in the value of the common stock.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Companys assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses (NOLs) and research and development credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.
The Company accounts for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial
F-12
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
determination of the positions sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Companys policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. There have been no items qualifying as other comprehensive income (loss) and, therefore, for all periods presented, the Companys comprehensive loss was the same as its reported net loss.
Net Loss per Share Attributable to Common Stockholders
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, redeemable convertible preferred stock warrants, convertible notes, common stock subject to repurchase, and stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security. The Companys participating securities do not have a contractual obligation to share in the Companys losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its accounting standard codifications (ASC) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.
Recently Adopted Accounting Pronouncements
In May 2017, FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after
F-13
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
December 15, 2017. Early adoption is permitted. The Company adopted this new guidance beginning January 1, 2018, on prospective basis, which did not result in a material impact on its financial statements and related disclosures.
In November 2016, FASB issued ASU 2016-18, Restricted Cash. The amendments of this standard provide guidance on restricted cash disclosures and presentation in the statement of cash flows. This guidance is effective for interim and annual periods beginning after December 15, 2017.
The Company adopted ASU 2016-18 effective January 1, 2018, which required the change in restricted cash to be included as part of the total change in cash and cash equivalents on the statement of cash flows. While restricted cash is still presented as a separate line item in the Companys balance sheet, it will no longer be presented as a separate item in the statements of cash flows. ASU 2016-18 also required a restatement of the statements of cash flows in the prior period presented. The Company retroactively adjusted the statements of cash flows for the years ended December 31, 2016 and 2017 to show the combined result of cash and cash equivalents and restricted cash as follows:
Year ended December 31, 2016 | ||||||||||||
As previously
reported |
Adoption of ASU
2016-18 |
As reported | ||||||||||
Cash flows from investing activities |
||||||||||||
Change in restricted cash |
$ | 140 | $ | (140 | ) | $ | | |||||
Net cash used in investing activities |
(911 | ) | 140 | (771 | ) | |||||||
Cash and cash equivalents and restricted cash, at end of period |
$ | 9,622 | $ | 140 | $ | 9,762 |
Year ended December 31, 2017 | ||||||||||||
As previously
reported |
Adoption of ASU
2016-18 |
As reported | ||||||||||
Cash and cash equivalents and restricted cash, at beginning of period |
$ | 9,622 | $ | 140 | $ | 9,762 | ||||||
Cash and cash equivalents and restricted cash, at end of period |
$ | 1,395 | $ | 140 | $ | 1,535 |
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory , which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company adopted this new guidance beginning January 1, 2018, which did not result in a material impact on its financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which requires changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this update is effective for interim and annual periods beginning after December 15, 2017. The Company adopted this new guidance beginning January 1, 2018, on a retrospective basis, which did not result in a material impact on its financial statements and related disclosures.
In March 2016, FASB issued ASU 2016-09, Stock CompensationImprovements to Employee Share-Based Payment Accounting . On January 1, 2017, the Company adopted the amendments to ASC 718, which simplify accounting for share-based payment transactions. Prior to this amendment, excess tax benefits resulting from the difference between the deduction for tax purposes and the compensation costs recognized for financial reporting were not recognized until the deduction reduced taxes payable. Under the new method, the Company recognizes excess tax benefits in the current accounting period. In addition, prior to January 1, 2017, the employee share-based compensation expense was recorded net of estimated forfeiture rates and subsequently adjusted at the
F-14
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
vesting date, as appropriate. As part of the amendment, the Company has stopped estimating forfeitures and elected to recognize the actual forfeitures by reducing the employee share-based compensation expense in the same period as the forfeitures occur. The Company has adopted these changes in accounting method using the modified retrospective method under which the Company should recognize the cumulative effect adjustment to the opening accumulated deficit as of January 1, 2017. The cumulative effect of the changes as of January 1, 2017 for the adoption of ASU 2016-09 was immaterial. Hence, the Company did not recognize the cumulative effect adjustment in its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial InstrumentsOverall: Recognition and Measurement of Financial Assets and Financial Liabilities . The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard is effective for financial statements issued for interim and annual periods beginning after December 15, 2017. The Company adopted this new guidance beginning January 1, 2018, on a retrospective basis, which did not result in a material impact on its financial statements and related disclosures.
New Accounting Pronouncements Not Yet Adopted
In June 2018, the FASB issued Accounting Standards Update (ASU) 2018-07, Compensation Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The transition method provided by ASU 2018-07 is a modified retrospective basis which recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entitys adoption date of Topic 606. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.
In July 2017, FASB issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception . This update simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. Down round features are common in warrants, preferred shares, and convertible debt instruments issued by private companies and early-stage public companies. This update requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The provisions of this update related to down rounds are effective for public entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments in Part I should be applied (1) retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim periods; (2) retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.
F-15
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840 Leases . In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , an update which provides another transition method in addition to the existing modified retrospective transition method by allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The standard is effective for interim and annual periods beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements and related disclosures.
3. Property and Equipment, net
Property and equipment, net consists of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
June 30,
2018 |
||||||||||
(unaudited) | ||||||||||||
Leasehold improvement |
$ | 1,260 | $ | 1,260 | $ | 1,260 | ||||||
Laboratory equipment |
945 | 1,174 | 1,207 | |||||||||
Computer equipment |
52 | 52 | 52 | |||||||||
Computer software |
139 | 173 | 178 | |||||||||
Furniture and fixtures |
206 | 225 | 225 | |||||||||
Office equipment |
79 | 79 | 79 | |||||||||
|
|
|
|
|
|
|||||||
Total property and equipment |
2,681 | 2,963 | 3,001 | |||||||||
Less: Accumulated depreciation |
(905 | ) | (1,454 | ) | (1,698 | ) | ||||||
|
|
|
|
|
|
|||||||
Property and equipment, net |
$ | 1,776 | $ | 1,509 | $ | 1,303 | ||||||
|
|
|
|
|
|
All long-lived assets are maintained in the United States. Depreciation expense, including depreciation of assets under capital leases, was $0.3 million and $0.5 million for the years ended December 31, 2016 and 2017 and $0.2 million (unaudited) and $0.2 million (unaudited) for the six months ended June 30, 2017 and 2018, respectively. As of December 31, 2016 and 2017, laboratory equipment included $0.2 million and $0.3 million of equipment acquired under capital leases, respectively, for which depreciation was less than $0.1 million for the years ended December 31, 2016 and 2017. As of June 30, 2018, laboratory equipment included $0.3 million (unaudited) of equipment acquired under capital leases, for which depreciation was less than $0.1 million (unaudited) for the six months ended June 30, 2018.
F-16
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
4. Accrued Liabilities and Other Current Liabilities
Accrued liabilities and other current liabilities consist of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
June 30,
2018 |
||||||||||
(unaudited) | ||||||||||||
Accrued research and development |
$ | 626 | $ | 4,293 | $ | 546 | ||||||
Accrued salaries and benefits |
501 | 1,129 | 752 | |||||||||
Accrued professional fees |
80 | 19 | 358 | |||||||||
Accrued legal fees |
17 | 35 | 171 | |||||||||
Tenant improvement allowance payable |
84 | 80 | 55 | |||||||||
Capital lease payable |
82 | 108 | 88 | |||||||||
Accrued other liabilities |
44 | 138 | 47 | |||||||||
|
|
|
|
|
|
|||||||
Total accrued and other current liabilities |
$ | 1,434 | $ | 5,802 | $ | 2,017 | ||||||
|
|
|
|
|
|
5. Fair Value Measurements
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1 Observable inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs which reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The following tables present the Companys fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):
Fair Value Measurements at December 31, 2016 | ||||||||||||||||
Quoted Price
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 9,441 | $ | | $ | | $ | 9,441 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 9,441 | $ | | $ | | $ | 9,441 | ||||||||
|
|
|
|
|
|
|
|
F-17
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
There was no liability measured at fair value on a recurring and non-recurring basis as of December 31, 2016.
Fair Value Measurements at December 31, 2017 | ||||||||||||||||
Quoted Price
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets : |
||||||||||||||||
Money market funds |
$ | 1,217 | $ | | $ | | $ | 1,217 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,217 | $ | | $ | | $ | 1,217 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Redeemable convertible preferred stock warrant liability |
$ | | $ | | $ | 2,300 | $ | 2,300 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | | $ | 2,300 | $ | 2,300 | ||||||||
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2018 (unaudited) | ||||||||||||||||
Quoted Price
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets : |
||||||||||||||||
Money market funds |
$ | 17,490 | $ | | $ | | $ | 17,490 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 17,490 | $ | | $ | | $ | 17,490 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Redeemable convertible preferred stock warrant liability |
$ | | $ | | $ | 4,005 | $ | 4,005 | ||||||||
2018 derivative instrument |
$ | | $ | | $ | 7,367 | $ | 7,367 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | | $ | 11,372 | $ | 11,372 | ||||||||
|
|
|
|
|
|
|
|
The following table sets forth a summary of the changes in the fair value of the Companys Level 3 financial instruments (in thousands):
Redeemable
Convertible Preferred Stock Warrant Liability |
2018 Derivative
Instrument Liability |
|||||||
Fair value as of December 31, 2016 |
$ | | $ | | ||||
Issuance of financial instruments |
1,040 | | ||||||
Change in fair value included in other income (expense), net |
1,260 | | ||||||
|
|
|
|
|||||
Fair value as of December 31, 2017 |
$ | 2,300 | $ | | ||||
Issuance of financial instruments (unaudited) |
| 6,603 | ||||||
Change in fair value included in other income (expense), net (unaudited) |
1,705 | 764 | ||||||
|
|
|
|
|||||
Fair value as of June 30, 2018 (unaudited) |
$ | 4,005 | $ | 7,367 | ||||
|
|
|
|
The estimated fair value of the 2017 convertible notes (Level 3 instrument for disclosure purposes) was $19.0 million as of December 31, 2017 and $22.4 million (unaudited) as of June 30, 2018.
F-18
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
The estimated fair value of the 2018 convertible notes (Level 3 instrument for disclosure purposes) was $42.3 million (unaudited) as of June 30, 2018.
The Company used a hybrid method between the probability-weighted expected return method (PWERM) and the Black-Scholes option pricing model (OPM) to estimate the fair value of the warrants, 2017 and 2018 convertible notes and derivative instruments. The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the Company, as well as the economic and control rights of each share class. Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options.
The Company estimated the probability-weighted value across multiple scenarios, using the OPM to estimate the allocation of value within one of or more of those scenarios. In this valuation, the Company considered two possible outcomes under PWERM: (1) an IPO and (2) continued operations as a private company scenario, which is modeled using the OPM. For the IPO scenario, the fair value of the Companys common stock is consistent with the methods outlined in the Practice Aid. Estimates of fair value using valuation the OPM are affected by assumptions regarding a number of complex variables, including expected term, expected volatility, expected dividend, and risk-free interest rate. The Company considered as inputs to the PWERM the probability of occurrence of an IPO, the enterprise value and the discount rate, which is a blended rate that reflects the risk associated with the business during the forecasted period. Specifically, at December 31, 2017, the fair values recognized for the warrants and the derivative instruments, and for disclosure purposes of the fair value of convertible notes, assumed a discount rate of 57.5%, volatility of 75%, a risk free rate of 1.97%, no dividends expected to be paid, and an expected term based on the timing for the IPO scenario and the private scenario. At June 30, 2018, the fair values recognized for the warrants and for disclosure purposes of the fair value of convertible notes, assumed a discount rate of 55.0% (unaudited), volatility of 70.0% (unaudited), a risk free rate of 2.57% (unaudited), no dividends expected to be paid (unaudited), and an expected term based on the timing for the IPO scenario and the private scenario. The fair values recognized for the derivative instruments considered the probability and timing of occurrence of the underlying events of 0.25 to 1.0 years and assumed a discount rate of 40%.
6. Convertible Notes
In August 2017, the Company received $10.0 million in gross proceeds from the issuance of the 2017 convertible notes and warrants to purchase Series B redeemable convertible preferred stock (Note 12). Of this, $8.0 million aggregate principal amount of the 2017 convertible notes were issued to related parties. Interest on the unpaid principal balance of the 2017 convertible notes accrues and compounds monthly from October 1, 2017 at a rate of 2.5% per month and is payable at maturity. Unless converted or redeemed upon occurrence of certain events, the 2017 convertible notes mature on December 1, 2020. The 2017 convertible notes include embedded derivatives that are required to be bifurcated and accounted for separately as a single, compound derivative instrument. The estimated fair value of 2017 derivative instrument was immaterial as of the issuance date and December 31, 2017 and June 30, 2018 (unaudited), due to the probability of occurrence of the underlying events being remote.
The Companys obligations with respect to the 2017 convertible notes are secured by all of its tangible and intangible assets. The 2017 convertible notes include covenants that restrict Companys ability to issue capital stock, repurchase or redeem capital stock, dispose of assets, incur debt, incur liens and make distributions to stockholders, including dividends. The 2017 convertible notes have customary events of default.
After January 31, 2018, each holder of 2017 convertible notes may at any time, at its option, elect to convert the principal amount and accrued interest of such convertible notes into shares of Series B redeemable convertible preferred stock at a price of $5.00 per share. Upon the consummation of an IPO, the 2017 convertible
F-19
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
notes outstanding principal balance and accrued but unpaid interest will be repaid, unless the holder elects, at its option, to convert the notes into shares of common stock issued in such IPO at a conversion price equal to the issuance price of common stock issued in such IPO.
The discount on 2017 convertible notes will be amortized over the contractual period of 3.31 years, using the effective interest rate method. The 2017 convertible notes have an annual effective interest rate of 38.18% per year. The 2017 convertible notes interest expense for the year ended December 31, 2017 was $1.1 million, consisting of $0.8 million of contractual interest expense and $0.3 million of debt discount and issuance costs amortization. The 2017 convertible notes interest expense for the six months ended June 30, 2018 was $1.7 million (unaudited), consisting of $1.7 million (unaudited) of contractual interest expense and less than $0.1 million (unaudited) of debt discount and issuance costs amortization.
As additional consideration for the notes, the Company issued warrants to purchase an aggregate of 500,000 shares of Series B redeemable convertible preferred stock at the exercise price of $0.01, as adjusted for any stock splits, stock dividends, recapitalizations, reclassifications, combinations or similar transactions.
Future principal repayments of the 2017 convertible notes are as follows (in thousands):
As of
December 31, 2017 |
As of
June 30, 2018 |
|||||||
Year ended December 31, 2020 |
$ | 10,000 | $ | 10,000 | ||||
|
|
|
|
|||||
Total |
$ | 10,000 | $ | 10,000 | ||||
|
|
|
|
|||||
Less: unamortized balance of debt discount |
(848 | ) | (791 | ) | ||||
|
|
|
|
|||||
Convertible note balance, net of discount |
9,152 | 9,209 | ||||||
Accrued interest |
769 | 2,489 | ||||||
|
|
|
|
|||||
Total balance |
$ | 9,921 | $ | 11,698 | ||||
|
|
|
|
In February 2018, the Company received $33.0 million in gross proceeds from the issuance of 2018 convertible notes, of which the Company issued $31.2 million aggregate principal amount on February 2, 2018 (first tranche) and $1.8 million aggregate principal amount on February 23, 2018 (second tranche). Of this, $9.6 million were issued to related parties. Interest on the unpaid principal balance of the 2018 convertible notes accrues from the date of issuance, and compounds monthly from February 28, 2018 at a rate of 6.0% per year and is payable at maturity. Unless converted, the 2018 convertible notes mature on the earlier of (1) December 1, 2020 and (2) the date of the consummation of a change of control. The 2018 convertible notes include embedded derivatives that are required to be bifurcated and accounted for separately as a single, compound derivative instrument. The estimated fair value of 2018 derivative instrument was $6.6 million as of the issuance date and $7.4 million (unaudited) as of June 30, 2018.
The discount on 2018 convertible notes for the first and second tranche will be amortized over the contractual period of 2.83 years and 2.77 years, respectively, using the effective interest rate method. The 2018 convertible notes have an annual effective interest rate of 15.10% per year for the first tranche and 15.45% per year for the second tranche. The 2018 convertible notes interest expense for the six months ended June 30, 2018 was $1.5 million (unaudited), consisting of $0.8 million (unaudited) of contractual interest expense and $0.7 million (unaudited) of debt discount and issuance costs amortization.
The Companys obligations with respect to the 2018 convertible notes are unsecured and subordinated to its obligations with respect to the 2017 convertible notes. The 2018 convertible notes include covenants that restrict the Companys ability to issue capital stock, repurchase or redeem capital stock, dispose of assets, incur debt, incur liens and make distributions to stockholders, including dividends. The 2018 convertible notes have customary events of default.
F-20
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
The 2018 convertible notes will automatically convert into shares of the Companys common stock at a price equal to (1) 80% of the initial price to public in a qualified initial public offering if such offering is completed prior to February 2, 2019 and (2) 75% of the initial price to public in a qualified initial public offering if such offering is completed on or after February 2, 2019. A qualified initial public offering for the purposes of the 2018 convertible notes is one in which the Company generates aggregate gross proceeds of at least $75.0 million or all of the 2017 convertible notes convert into shares of the Companys common stock. In connection with an offering that does not constitute a qualified initial public offering, each holder of 2018 convertible notes may, at its option, elect to convert the principal amount and accrued interest of such convertible notes into shares of common stock at a price equal to (1) 80% of the initial price to public if such offering is completed prior to February 2, 2019 and (2) 75% of the initial price to public if such offering is completed on or after February 2, 2019.
Future principal repayments of the 2018 convertible notes are as follows (in thousands):
As of
June 30, 2018 |
||||
Year ended December 31, 2020 |
$ | 33,000 | ||
|
|
|||
Total |
$ | 33,000 | ||
|
|
|||
Less: unamortized balance of debt discount |
(6,012 | ) | ||
|
|
|||
Convertible note balance, net of discount |
26,988 | |||
Accrued interest |
809 | |||
|
|
|||
Total balance |
$ | 27,797 | ||
|
|
The 2017 and 2018 convertible notes contain a clause in which failure to communicate to the lender any material adverse change or effect on the business, condition, operations, or ability to perform obligations under the terms of the 2017 and 2018 notes is considered an event of default.
7. Commitments and Contingencies
Leases
In January 2013, the Company executed a non-cancellable lease agreement for office and laboratory space in Palo Alto, California. The lease began in October 2013 and would expire in October 2018. In March 2016, the Company executed a lease amendment agreement which was effective March 2016 and extended the lease term until October 2023.
The Company recognizes rent expense on a straight-line basis over the lease period. Rent expense for the years ended December 31, 2016 and 2017 for these facilities was $0.5 million and $0.6 million, respectively. Rent expense for the six months ended June 30, 2017 and 2018 (unaudited) for these facilities was $0.3 million.
Capital Lease
On March 22, 2016, the Company executed a lease agreement with GE HFS LLC for laboratory equipment. The lease was recognized as a capital lease for laboratory equipment of $0.2 million. The agreement began on March 31, 2016 and will expire on March 30, 2019 and consists of 36 equal monthly payments.
On January 30, 2017, the Company executed a lease agreement with GE HFS LLC for laboratory equipment. The lease was recognized as a capital lease for laboratory equipment of $0.1 million. The agreement began on March 27, 2017 and will expire on March 26, 2020 and consists of 33 equal monthly payments starting June 2017.
At December 31, 2016 and 2017, capital lease liability of $0.1 million was included in accrued and other current liabilities and $0.1 million was included in capital lease obligation, noncurrent. At June 30, 2018, capital
F-21
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
lease liability of $0.1 million (unaudited) was included in accrued and other current liabilities and less than $0.1 million (unaudited) was included in capital lease obligation, noncurrent.
The following table summarizes the Companys future minimum commitments under non-cancelable contracts (in thousands):
As of December 31, |
Operating
Lease |
Capital
Lease |
||||||
2018 |
$ | 514 | $ | 135 | ||||
2019 |
564 | 56 | ||||||
2020 |
581 | 5 | ||||||
2021 |
598 | | ||||||
2022 |
616 | | ||||||
Thereafter |
526 | | ||||||
|
|
|
|
|||||
Total payments |
$ | 3,399 | $ | 196 | ||||
|
|
|
|
As of June 30, 2018 (unaudited): |
Operating
Lease |
Capital
Lease |
||||||
Remaining Fiscal 2018 |
$ | 263 | $ | 68 | ||||
2019 |
564 | 56 | ||||||
2020 |
581 | 5 | ||||||
2021 |
598 | | ||||||
2022 |
616 | | ||||||
Thereafter |
526 | | ||||||
|
|
|
|
|||||
Total payments |
$ | 3,148 | $ | 129 | ||||
|
|
|
|
Other Commitments; Contingencies
The Company has entered into service agreements with Lonza AG and its affiliates (Lonza), pursuant to which Lonza agreed to perform activities in connection with the manufacturing process of certain compounds. Such agreements, and related amendments, state that planned activities that are included in the signed work orders are, in some cases, binding and, hence, obligate the Company to pay the full price of the work order upon satisfactory delivery of products and services. Per the terms of the agreements, the Company has the option to cancel signed orders at any time upon written notice, which may or may not be subject to payment of a cancellation fee. The level of cancellation fees are sometimes dependent on the timing of the written notice in relation to the commencement date of the work, with the maximum cancellation fee equal to the full price of the work order. As of December 31, 2017 and June 30, 2018, the total amount of unconditional purchase obligations, including accrued amounts, under these agreements was $10.9 million and $2.1 million (unaudited), respectively. Purchases under this agreement for the years ended December 31, 2016 and 2017 were $6.1 million and $13.9 million, respectively, and for the six months ended June 30, 2017 and 2018 were $6.8 million (unaudited) and $1.7 million (unaudited), respectively. As of December 31, 2017 and June 30, 2018 (unaudited), the Company had not incurred any cancellation fees for the work performed by Lonza.
The Company is also party to a cancellable assignment and license agreement that would require the Company to make milestone payments of up to $33.2 million and royalty payments on net sales of products utilizing KSI-201 and related technology. Such milestones and royalties are dependent on future activity or product sales and are not estimable.
F-22
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Tenant Improvement Allowance Payable
In May 2013, the Company entered into a tenant improvement allowance agreement with its landlord. The agreement allowed the Company to draw down $0.3 million for tenant improvements related to the office lease over the period from the execution of the agreement to October 2018. The interest rate is 8% per year over the lease period.
In March 2016, the Company entered into a lease amendment, under which the Company is allowed to draw down an additional allowance of $0.4 million for tenant improvements related to the office lease over the period from the execution of the agreement to October 2023. The interest rate is 8% per year over 10 years. Principal and interest are payable on the first day of every month.
As of December 31, 2016 and 2017, the current portion of the tenant improvement allowance payable in the amount of $0.1 million was included in accrued and other current liabilities. As of June 30, 2018, the current portion of the tenant improvement allowance payable in the amount of $0.1 million (unaudited) was included in accrued and other current liabilities. As of December 31, 2016 and 2017, the non-current portion of the tenant improvement allowance payable in the amount of $0.5 million and $0.4 million, respectively, was included in other liabilities. As of June 30, 2018, the non-current portion of the tenant improvement allowance payable in the amount of $0.4 million (unaudited) was included in other liabilities.
Legal Proceedings
From time to time, the Company may become involved in legal proceedings arising from the ordinary course of its business. Management is currently not aware of any matters that could have a material adverse effect on the Companys financial position, results of operations or cash flows. The Company records a legal liability when it believes that it is both probable that a liability may be imputed, and the amount of the liability can be reasonably estimated. Significant judgment by the Company is required to determine both probability and the estimated amount.
Indemnification
To the extent permitted under Delaware law, the Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at the Companys request in such capacity. The indemnification period covers all pertinent events and occurrences during the directors or officers service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
8. Income Taxes
The Company has not recorded any income tax expense. The Company has a net operating loss and has provided a valuation allowance against net deferred tax assets due to uncertainties regarding the Companys ability to realize these assets.
The components of income (loss) before income taxes were as follows (in thousands):
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
|||||||
United States |
$ | (14,632 | ) | $ | (3,240 | ) | ||
Foreign |
(2,500 | ) | (24,696 | ) | ||||
|
|
|
|
|||||
Total loss before income taxes |
$ | (17,132 | ) | $ | (27,936 | ) | ||
|
|
|
|
F-23
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
The tax effects of temporary differences that give rise to significant components of the deferred tax assets are as follows (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Deferred tax assets |
||||||||
Net operating loss carryforwards |
$ | 7,022 | $ | 11,270 | ||||
Intangible assets |
783 | 618 | ||||||
Research and development tax credits |
235 | 788 | ||||||
Accruals |
172 | 393 | ||||||
Property and equipment |
88 | 97 | ||||||
Other |
65 | 26 | ||||||
|
|
|
|
|||||
Total gross deferred tax asset |
$ | 8,365 | $ | 13,192 | ||||
Valuation allowance |
(8,365 | ) | (13,192 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | | ||||
|
|
|
|
The Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty as to whether such assets will be realized. The valuation allowance increased by $4.8 million from December 31, 2016 to December 31, 2017 due primarily to the generation of current year net operating losses and research and development credits and offset by a decrease in the deferred taxes assets related to the reduction of the U.S. corporate income tax rate from the 2017 Tax Act.
On December 22, 2017, H.R. 1 (the Tax Act) was enacted and included broad tax reforms. The Tax Act reduced the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The rate change resulted in a $2.5 million reduction in the Companys deferred tax assets from prior year with an offsetting change in the valuation allowance. The Tax Act also imposed a deemed repatriation of foreign earnings of subsidiaries; Kodiak Sciences GmbH is considered an E&P deficit corporation for the purposes of this provision and thus no income inclusion was required. The Company has elected to treat taxes on Global Intangible Low Tax Income (GILTI) as period costs starting in 2018.
The SEC released Staff Accounting Bulletin 118 on December 22, 2017 to provide guidance in the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the tax reform. The ultimate impact of tax reform may differ from the Companys accounting for the relevant matters of the Tax Act, due to changes in clarification and interpretive guidance that may be issued by the IRS and actions the Company may take in response to the Tax Act. Tax reform is highly complex and the Company will continue to assess the impact that various provisions will have on its business. Any subsequent adjustment to these amounts will be recorded to current tax expense when the analysis is complete. Accordingly, the Company recorded a provisional charge for the remeasurement of deferred taxes at 21% as of December 31, 2017, with a corresponding offset to the Companys valuation allowance. The Company considers the accounting of the deferred tax re-measurements to be complete. However, ongoing guidance and accounting interpretation are expected in the near term and the Company expects to complete its analysis within the measurement period in accordance with SAB 118.
NOLs and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service (IRS) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Companys value immediately prior to the ownership change. Subsequent ownership
F-24
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
changes may further affect the limitation in future years. The Company has not determined whether there has been any cumulative ownership changes or the impact on the utilization of the loss carryforwards if such changes have occurred.
As of December 31, 2017, the Company has $18.1 million of federal and $43.2 million state net operating loss available to offset future taxable income. The federal net operating loss carryforwards begin to expire in 2035 and the state net operating loss carryforwards begin to expire in 2035, if not utilized.
As of December 31, 2017, the Company also had federal and state research and development credit carryforwards of $0.7 million and $0.5 million, respectively. The federal research and development credit carryforwards expire beginning 2035. The California tax credit can be carried forward indefinitely.
A reconciliation of the Companys effective tax rate to the statutory U.S. federal rate is as follows:
December 31,
2016 |
December 31,
2017 |
|||||||
Federal statutory income tax rate |
34.0 | % | 34.0 | % | ||||
State taxes (tax effected) |
5.1 | 7.1 | ||||||
Foreign tax rate differential |
(2.8 | ) | (17.1 | ) | ||||
Research tax credit |
0.4 | 0.8 | ||||||
Stock-based compensation |
(0.2 | ) | (0.3 | ) | ||||
Other |
(0.3 | ) | (0.3 | ) | ||||
Remeasurement of deferred tax due to tax law change |
| (8.8 | ) | |||||
Change in valuation allowance |
(36.2 | ) | (15.4 | ) | ||||
|
|
|
|
|||||
Provision for income taxes |
0.0 | % | 0.0 | % | ||||
|
|
|
|
The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. It is the Companys policy to include penalties and interest expense related to income taxes as a component of other expense, net as necessary.
The beginning and ending unrecognized tax benefits amounts is as follows (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Unrecognized tax benefits at beginning of period |
$ | 128 | $ | 235 | ||||
Increases related to prior year tax positions |
| 102 | ||||||
Increases related to current year tax positions |
107 | 20 | ||||||
|
|
|
|
|||||
Unrecognized tax benefits at end of period |
$ | 235 | $ | 357 | ||||
|
|
|
|
The Company files income tax returns in the United States and Switzerland. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All tax returns remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits.
9. Redeemable Convertible Preferred Stock
As of December 31, 2016 and 2017 and June 30, 2018, the Companys certificate of incorporation authorized the Company to issue up to 13,753,595, 18,753,595, and 18,753,595 (unaudited), respectively, shares of redeemable convertible preferred stock.
F-25
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Issued and outstanding redeemable convertible preferred stock and its principal terms were as follows (in thousands, except per share and share amounts):
December 31, 2016 |
Redeemable Convertible
Preferred Stock |
Liquidation
Value |
Carrying
Value |
Original
Issuance Price (1) |
||||||||||||||||
Authorized | Outstanding | |||||||||||||||||||
Series A redeemable convertible preferred stock |
6,253,595 | 5,593,154 | $ | 16,364 | $ | 16,283 | $ | 3.17 | ||||||||||||
Series B redeemable convertible preferred stock |
7,500,000 | 6,792,000 | 33,960 | 33,734 | $ | 5.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
13,753,595 | 12,385,154 | $ | 50,324 | $ | 50,017 | ||||||||||||||
|
|
|
|
|
|
|
|
December 31, 2017 |
Redeemable Convertible
Preferred Stock |
Liquidation
Value |
Carrying
Value |
Original
Issuance Price (1) |
||||||||||||||||
Authorized | Outstanding | |||||||||||||||||||
Series A redeemable convertible preferred stock |
6,253,595 | 5,593,154 | $ | 16,364 | $ | 16,283 | $ | 3.17 | ||||||||||||
Series B redeemable convertible preferred stock |
12,500,000 | 6,792,000 | 33,960 | 33,734 | $ | 5.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
18,753,595 | 12,385,154 | $ | 50,324 | $ | 50,017 | ||||||||||||||
|
|
|
|
|
|
|
|
June 30, 2018 (unaudited) |
Redeemable Convertible
Preferred Stock |
Liquidation
Value |
Carrying
Value |
Original
Issuance Price (1) |
||||||||||||||||
Authorized | Outstanding | |||||||||||||||||||
Series A redeemable convertible preferred stock |
6,253,595 | 5,593,154 | $ | 16,364 | $ | 16,283 | $ | 3.17 | ||||||||||||
Series B redeemable convertible preferred stock |
12,500,000 | 6,792,000 | 33,960 | 33,734 | $ | 5.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
18,753,595 | 12,385,154 | $ | 50,324 | $ | 50,017 | ||||||||||||||
|
|
|
|
|
|
|
|
(1) |
In connection with the incorporation of the Company in the year ended December 31, 2015, all previously issued and outstanding Series A-1, Series B-1 and Series C-1 redeemable convertible preferred stock of Oligasis were converted into shares of the Companys Series A redeemable convertible preferred stock at a par value of $0.0001 per share. The original issuance price of Series A redeemable convertible preferred stock is calculated based on the original issuance price of the Oligasis Series A-1, Series B-1 and Series C-1 redeemable convertible preferred stock of $1.34, $2.15, and $3.73, respectively, on a weighted-average basis. |
The holders of redeemable convertible preferred stock have various rights and preferences including the following:
Liquidation Preference
In the event of any liquidation event, the holders of the Series B redeemable convertible preferred stock are entitled to receive in any distribution of any of the assets of the Company in preference to the holders of the Series A redeemable convertible preferred stock or common stock, an amount equal to the original issue price, adjusted for any stock splits, stock dividends, recapitalizations, reclassifications, combinations or similar transactions (anti-dilution adjustments), plus all declared and unpaid dividends on such shares. After full payment to holders of the Series B redeemable convertible preferred stock, payment should be made to the holders of Series A redeemable convertible preferred stock, in preference to the holders of the common stock, an amount equal to the original issue price, adjusted for any anti-dilution adjustments, plus all declared and unpaid dividends on such shares. After the payment of the liquidation preference, all remaining assets available for distribution will be distributed ratably among the holders of the common stock. If available assets are insufficient to pay the full liquidation preference of a given series of redeemable convertible preferred stock, the assets available for distribution to holders of such preferred stock will be distributed among such holders on a pro rata basis.
F-26
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Notwithstanding the above, for purposes of determining the amount each holder of shares of redeemable convertible preferred stock is entitled to receive with respect to a liquidation event, each such holder of shares of a series of redeemable convertible preferred stock shall be deemed to have converted such holders shares of such series into shares of common stock immediately prior to the liquidation event if, as a result of an actual conversion, such holder would receive, in the aggregate, an amount greater than the amount that would be distributed to such holder if such holder did not convert such series of redeemable convertible preferred stock into shares of common stock. If any such holder shall be deemed to have converted shares of redeemable convertible preferred stock into common stock pursuant to this paragraph, then such holder shall not be entitled to receive any distribution that would otherwise be made to holders of redeemable convertible preferred stock that have not converted into shares of common stock.
Conversion
Shares of any series of redeemable convertible preferred stock can be converted, at the option of the stockholder, into such number of fully paid and non-assessable shares of common stock. The conversion price is determined by dividing the original issuance price applicable to each series of redeemable convertible preferred stock, adjusted for any anti-dilution adjustments, by the applicable conversion price for such series. As of December 31, 2017 and June 30, 2018 (unaudited), the Companys redeemable convertible preferred stock is convertible into the Companys shares of common stock on a one-for-one basis.
Shares of redeemable convertible preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate for such share, upon earlier to occur of: (1) the date, or the occurrence of event, specified by the vote of or written consent of the holders of at least a majority of the redeemable convertible preferred stock voting together as a single class on an as-converted basis; and (2) immediately prior to the consummation of a firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act, covering the offer and sale of the Companys common stock, provided that the per share price is at least $10.00 and gross proceeds to the Company are equal to or greater than $75.0 million.
Dividends
The redeemable convertible preferred stock dividends are not cumulative and are payable only when declared by the board of directors. No such dividends have been declared. Such dividends are in preference to any dividends to holders of common stock.
Voting Rights
Each holder of redeemable convertible preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which the shares of redeemable convertible preferred stock held by such holder could be converted as of the record date. Holders of redeemable convertible preferred stock and common stock generally vote as a single class.
Redemption and Balance Sheet Classification
The redeemable convertible preferred stock is recorded in mezzanine equity because while it is not mandatorily redeemable, it will become redeemable at the option of the stockholders upon the occurrence of certain deemed Liquidation Events that are considered not solely within the Companys control.
10. Common Stock
As of December 31, 2016 and 2017 and June 30, 2018, the Companys certificate of incorporation authorized the Company to issue 23,500,000, 28,500,000, and 28,500,000 (unaudited), respectively, shares of common stock at the par value of $0.0001 per share. The holder of each share of common stock is entitled to one vote per share.
F-27
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
The number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding or reserved for issuance) by the affirmative vote of the holders of a majority (assuming the conversion of all redeemable convertible preferred stock into shares of the Companys common stock) of the capital stock of the Company entitled to vote and without a separate class vote of the common stock.
The board of directors has determined the fair value of the common stock, with assistance from management and external appraisers, by considering a number of objective and subjective factors including valuation of comparable companies, sales of redeemable convertible preferred stock, operating and financial performance and general and industry specific economic outlook, among other factors. The fair value of the common stock shall be determined by the board of directors until such time as the Companys common stock is listed on an established stock exchange or national market system. The fair value was determined in accordance with applicable elements of the Practice Aid.
The Company had reserved common stock, on an as-converted basis for future issuance as follows:
December 31,
2016 |
December 31,
2017 |
June 30,
2018 |
||||||||||
(unaudited) | ||||||||||||
Conversion of Series A redeemable convertible preferred stock |
5,593,154 | 5,593,154 | 5,593,154 | |||||||||
Conversion of Series B redeemable convertible preferred stock |
6,792,000 | 6,792,000 | 6,792,000 | |||||||||
Conversion of the 2017 convertible notes (1) |
| 2,153,781 | 2,497,722 | |||||||||
Conversion of the 2018 convertible notes (2) |
| | | |||||||||
Exercise of redeemable convertible preferred stock warrants |
| 500,000 | 500,000 | |||||||||
Exercise of outstanding options under the 2015 Plan |
1,263,757 | 1,204,414 | 3,383,478 | |||||||||
Issuance of common stock under the 2015 Plan |
551,817 | 605,557 | 398,693 | |||||||||
|
|
|
|
|
|
|||||||
Total |
14,200,728 | 16,848,906 | 19,165,047 | |||||||||
|
|
|
|
|
|
(1) |
Calculated as $10.0 million principal and $0.8 million accrued but unpaid interest as of December 31, 2017 and $10.0 million (unaudited) principal and $2.5 million (unaudited) accrued but unpaid interest as of June 30, 2018, convertible at $5.00 per share of common stock. |
(2) |
The conversion of the 2018 convertible notes into common stock is dependent on the price in a qualified initial public offering or other equity offering and the completion date of such offerings. These factors are not estimable and the number of common stock is not determinable. |
11. Stock-based Compensation
2015 Equity Incentive Plan
In September 2015, the Company adopted the 2015 Equity Incentive Plan (the 2015 Plan) under which 2,810,513 shares of common stock were reserved for issuance through grants of stock options (incentive stock options (ISOs), nonqualified stock options (NSOs) and restricted stock awards to employees, directors and consultants of the Company. The awards outstanding under the previously terminated 2009 Share Incentive Plan continued to be governed by their existing terms. Options under the Plans may be granted for periods of up to ten years and at prices based upon the estimated fair value of the shares on the date of grant as determined by the board of directors; provided, however, that (1) the exercise price of an option shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (2) the exercise price of an ISO granted to a greater than 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, and (3) the term of an ISO granted to a greater than 10% stockholder should not exceed five years. Options granted generally vest over four years. Shares issued under the 2015 Plan may, but need not, be exercisable immediately, but subject to a right of repurchase by the Company of any unvested shares.
F-28
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Stock Options
The following table summarizes the stock options activity (in thousands, except share and per share data).
Outstanding Awards | ||||||||||||||||||||
Number of
Shares Available for Grant |
Number of
Shares Underlying Outstanding Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value |
||||||||||||||||
Balance, January 1, 2016 |
1,814,560 | 102,937 | $ | 0.23 | 7.92 | $ | 86 | |||||||||||||
Options granted |
(1,209,595 | ) | 1,209,595 | $ | 1.04 | 9.53 | ||||||||||||||
Options exercised |
| (10,674 | ) | $ | 0.45 | 6.76 | 7 | |||||||||||||
Options forfeited or canceled |
38,101 | (38,101 | ) | $ | 0.97 | 9.38 | ||||||||||||||
Repurchase of early exercised options |
51,689 | | $ | 0.12 | ||||||||||||||||
Restricted stock awards granted (1) |
(142,938 | ) | | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, December 31, 2016 |
551,817 | 1,263,757 | $ | 0.98 | 9.42 | $ | 100 | |||||||||||||
Options granted |
(137,500 | ) | 137,500 | $ | 1.06 | |||||||||||||||
Options exercised |
| (5,603 | ) | $ | 0.50 | 3 | ||||||||||||||
Options forfeited or canceled |
191,240 | (191,240 | ) | $ | 1.04 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, December 31, 2017 |
605,557 | 1,204,414 | $ | 0.98 | 8.49 | $ | 41 | |||||||||||||
Shares authorized (unaudited) |
2,000,000 | | ||||||||||||||||||
RSAs granted (unaudited) |
(27,500 | ) | | |||||||||||||||||
Options granted (unaudited) |
(2,299,698 | ) | 2,299,698 | $ | 5.38 | |||||||||||||||
Options exercised (unaudited) |
| (300 | ) | $ | 0.12 | 2 | ||||||||||||||
Options forfeited or canceled (unaudited) |
120,334 | (120,334 | ) | $ | 5.19 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, June 30, 2018 (unaudited) |
398,693 | 3,383,478 | $ | 3.82 | 9.17 | $ | 5,272 | |||||||||||||
|
|
|
|
|||||||||||||||||
Shares exercisable, December 31, 2017 |
863,791 | $ | 0.97 | 8.38 | $ | 30 | ||||||||||||||
Vested and expected to vest, December 31, 2017 |
1,204,414 | $ | 0.98 | 8.49 | $ | 41 | ||||||||||||||
Shares exercisable, June 30, 2018 (unaudited) |
1,603,379 | $ | 2.79 | 8.66 | $ | 4,152 | ||||||||||||||
Vested and expected to vest, June 30, 2018 (unaudited) |
3,383,478 | $ | 3.82 | 9.17 | $ | 5,272 |
(1) |
Reflects an adjustment to shares available for grant related to the issuance of restricted stock awards under the 2015 Plan. |
During the years ended December 31, 2016 and 2017, the Company granted 1,205,940 and 107,500 stock options, respectively, to employees with a weighted-average grant date fair value of $0.60 and $0.61 per share, respectively. During the six months ended June 30, 2017 and 2018, the Company granted 107,500 (unaudited) and 1,904,698 (unaudited) stock options, respectively, to employees with a weighted-average grant date fair value of $0.61 (unaudited) and $2.90 (unaudited) per share, respectively.
The total fair value of employee options vested during the year ended December 31, 2017 was $0.2 million and during the six months ended June 30, 2018 was $0.3 million (unaudited). As of December 31, 2017 and June 30, 2018, the unrecognized stock-based compensation of unvested employee options was $0.4 million and $5.9 million (unaudited), respectively, and it is expected to be recognized over a weighted-average period of 1.1 years and 1.7 years (unaudited), respectively.
F-29
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Shares Subject to Repurchase
The Company has a right of repurchase with respect to unvested shares issued upon early exercise of options at an amount equal to the lower of (1) the exercise price of each restricted share being repurchased and (2) the fair market value of such restricted share at the time the Companys right of repurchase is exercised. The Companys right to repurchase these shares lapses as those shares vest over the requisite service period.
Shares purchased by employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be issued until those shares vest according to their respective vesting schedules. Cash received for early exercised stock options is recorded as accrued liabilities and other current liabilities on the consolidated balance sheet and is reclassified to common stock and additional paid-in capital as such shares vest. At December 31, 2016 and 2017, 19,336 and 2,887 shares, respectively, remained subject to the Companys right of repurchase as a result of the early exercised stock options. At June 30, 2017 and 2018, 6,293 (unaudited) and 938 (unaudited) shares, respectively, remained subject to the Companys right of repurchase as a result of the early exercised stock options.
Fair Value of Options Granted
The fair value of the shares of common stock underlying the stock options was determined by the board of directors as there has been no public market for the Companys common stock.
The Company estimated the fair value of employee stock options using the Black-Scholes valuation model. The fair value of employee stock options is recognized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Expected volatility |
64 | % | 63 | % | 63 | % | 55 | % | ||||||||
Risk-free interest rate |
1.22 | % | 1.89 | % | 1.89 | % | 2.70 | % | ||||||||
Dividend yield |
0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Expected term |
5.84 | 6.00 | 6.00 | 5.97 |
Expected Term . The expected term is calculated using the simplified method, which is available where there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.
Expected Volatility . The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company did not have any trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.
Risk-Free Interest Rate . The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of a stock award.
Expected Dividend Rate . The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.
F-30
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
Stock-based compensation expense recognized during the years ended December 31, 2016 and 2017 for options granted to employees was $0.2 million and $0.2 million, respectively. Stock-based compensation expense recognized during the six months ended June 30, 2017 and 2018 for options granted to employees was $0.1 million (unaudited) and $0.5 million (unaudited), respectively.
Non-Employee Stock-Based Compensation
During the years ended December 31, 2016 and 2017, the Company granted 3,655 and 30,000 shares of stock options to non-employees, respectively. During the six months ended June 30, 2017 and 2018, the Company granted 30,000 (unaudited) and 395,000 (unaudited) shares of stock options to non-employees, respectively. Stock-based compensation expense related to these stock options is recognized as the stock options are earned. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services received. The fair value of stock options granted to non-employees is calculated at each grant date and remeasured at each reporting date using the Black-Scholes option pricing model.
Stock-based compensation expense recognized during the years ended December 31, 2016 and 2017 for stock-based awards granted to non-employees was less than $0.1 million. Stock-based compensation expense recognized during the six months ended June 30, 2017 and 2018 for stock-based awards granted to non-employees was less than $0.1 million (unaudited) and $0.2 million (unaudited), respectively. The fair value of non-employee stock options was estimated using the following weighted-average assumptions:
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Expected volatility |
65 | % | 63 | % | 63 | % | 55 | % | ||||||||
Risk-free interest rate |
1.86 | % | 2.31 | % | 2.27 | % | 2.59 | % | ||||||||
Dividend yield |
0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Expected term |
9.09 | 9.35 | 9.63 | 9.03 |
Restricted Stock Awards
Restricted stock award (RSAs) activity were as follows:
Number of
Shares Underlying Outstanding RSAs |
Weighted
Average Grant Date Fair Value |
|||||||
Unvested, December 31, 2015 |
665,678 | $ | 0.14 | |||||
Granted |
142,938 | $ | 1.04 | |||||
Vested |
(259,265 | ) | $ | 0.68 | ||||
|
|
|||||||
Unvested, December 31, 2016 |
549,351 | $ | 0.41 | |||||
Vested |
(257,718 | ) | $ | 1.00 | ||||
|
|
|||||||
Unvested, December 31, 2017 |
291,633 | $ | 0.45 | |||||
Granted (unaudited) |
27,500 | $ | 5.38 | |||||
Vested (unaudited) |
(153,235 | ) | $ | 1.27 | ||||
|
|
|||||||
Unvested, June 30, 2018 (unaudited) |
165,898 | $ | 0.50 | |||||
|
|
Under the terms of the restricted stock agreements, 1/48th of the award vests monthly over four years, which is the requisite service period. Recipients of restricted stock awards generally have voting and dividend rights with respect to such shares upon grant without regard to vesting. Shares of restricted stock that do not vest are
F-31
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
subject to forfeiture. The Company recognizes stock-based compensation expense for RSAs on a straight-line basis over the requisite service period for the entire award. During the years ended December 31, 2016 and 2017, stock-based compensation expense recognized for RSAs was $0.1 million. During the six months ended June 30, 2017 and 2018, stock-based compensation expense recognized for RSAs was less than $0.1 million (unaudited) and $0.2 million (unaudited), respectively. The total value of RSAs vested during the years ended December 31, 2016 and 2017 was $0.1 million. The total value of RSAs vested during the six months ended June 30, 2017 and 2018 was less than $0.1 million (unaudited) and $0.2 million (unaudited), respectively. As of December 31, 2016 and 2017, the unrecognized stock-based compensation of unvested RSAs was $0.2 million and $0.1 million, and it is expected to be recognized over a weighted-average period of 1.12 and 0.60 years, respectively. As of June 30, 2018, the unrecognized stock-based compensation of unvested RSAs was $0.1 million (unaudited), and it is expected to be recognized over a weighted-average period of 0.4 years (unaudited).
The following table is a summary of stock compensation expense by function (in thousands):
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Research and development |
$ | 88 | $ | 171 | $ | 86 | $ | 365 | ||||||||
General and administrative |
184 | 104 | 52 | 384 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 272 | $ | 275 | $ | 138 | $ | 749 | ||||||||
|
|
|
|
|
|
|
|
12. Redeemable Convertible Preferred Stock Warrants
On August 11, 2017 with the issuance of the 2017 convertible notes (Note 6), the Company issued warrants to purchase 500,000 shares of Series B redeemable convertible preferred stock at an exercise price of $0.01 per share, including warrants issued to related parties to purchase an aggregate of 400,000 shares of Series B redeemable convertible preferred stock.
Upon the conversion of the Series B redeemable convertible preferred stock into shares of common stock, the warrants will convert into warrants to purchase 500,000 shares of common stock at an exercise price of $0.01 per share. The outstanding warrants will terminate at the earlier of August 11, 2022 and a change of control unless exercised. These warrants have a net exercise provision under which their holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Companys stock at the time of exercise of the warrants after deduction of the aggregate exercise price. These warrants contain provisions for adjustment of the exercise price and number of shares issuable upon the exercise of warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications and consolidations.
The estimated fair value of the redeemable convertible preferred stock warrants on the date of issuance of $1.0 million was recorded as a debt discount. The redeemable convertible preferred stock warrant liability had a fair value of $2.3 million as of December 31, 2017 and $4.0 million (unaudited) as of June 30, 2018. The change in fair value was recorded in the consolidated statements of operations and comprehensive loss. As of December 31, 2017 and June 30, 2018 (unaudited), all of the warrants remain outstanding.
13. Derivative Instruments
The redemption features of the 2017 convertible notes meet the requirements for separate accounting and are accounted for as a single, compound derivative instrument. The 2017 derivative instrument is recorded at fair value, which was immaterial as of the issuance date, December 31, 2017 and June 30, 2018 (unaudited), due to the probability of occurrence of the underlying events being remote. The Company will continue to remeasure fair value of the 2017 derivative instrument until the earlier of the conversion or redemption of the 2017 convertible notes (see Note 5 and 6).
F-32
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
The redemption features of the 2018 convertible notes meet the requirements for separate accounting and are accounted for as a single, compound derivative instrument. The 2018 derivative instrument is recorded at fair value, which was $6.6 million (unaudited) as of the issuance date and $7.4 million (unaudited) as of June 30, 2018 (see Note 5). The Company will continue to remeasure fair value of the 2018 derivative instrument until the earlier of the conversion or redemption of the 2018 convertible notes (see Note 6).
14. Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which excludes shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share data):
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Numerator: |
||||||||||||||||
Net loss attributable to common stockholders |
$ | (17,132 | ) | $ | (27,936 | ) | $ | (11,783 | ) | $ | (16,329 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted-average shares outstanding |
7,850,183 | 7,932,717 | 7,930,831 | 7,941,430 | ||||||||||||
Less: weighted-average unvested restricted shares and shares subject to repurchase |
(638,823 | ) | (417,381 | ) | (486,219 | ) | (220,463 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted |
7,211,360 | 7,515,336 | 7,444,612 | 7,720,967 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | (2.38 | ) | $ | (3.72 | ) | $ | (1.58 | ) | $ | (2.11 | ) | ||||
|
|
|
|
|
|
|
|
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:
Year Ended
December 31, 2016 |
Year Ended
December 31, 2017 |
Six Months Ended
June 30, 2017 |
Six Months Ended
June 30, 2018 |
|||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Redeemable convertible preferred stock |
12,385,154 | 12,385,154 | 12,385,154 | 12,385,154 | ||||||||||||
Conversion of the 2017 convertible notes (1) |
| 2,153,781 | | 2,497,722 | ||||||||||||
Conversion of the 2018 convertible notes (2) |
| | | | ||||||||||||
Series B redeemable convertible preferred stock warrants |
| 500,000 | | 500,000 | ||||||||||||
Options to purchase common stock |
1,263,757 | 1,204,414 | 1,281,298 | 3,383,478 | ||||||||||||
Unvested restricted stock awards |
549,351 | 291,633 | 420,491 | 165,898 | ||||||||||||
Unvested early exercised common stock options |
19,336 | 2,887 | 6,293 | 938 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
14,217,598 | 16,537,869 | 14,093,236 | 18,933,190 | ||||||||||||
|
|
|
|
|
|
|
|
F-33
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
(1) |
Calculated as $10.0 million principal and $0.8 million accrued but unpaid interest as of December 31, 2017 and $10.0 million (unaudited) principal and $2.5 million (unaudited) accrued but unpaid interest as of June 30, 2018, convertible at $5.00 per share of common stock. |
(2) |
The conversion of the 2018 convertible notes into common stock is dependent on the price in a qualified initial public offering or other equity offering and the completion date of such offerings. These factors are not estimable and the number of common stock is not determinable. |
Unaudited pro forma net loss per share
Unaudited pro forma basic and diluted net loss per share were computed to give effect to the automatic one-for-one conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock in connection with a Qualified IPO, using the as-converted method as though the conversion had occurred as of the beginning of the period presented or the date of issuance, if later, the automatic conversion of the redeemable convertible preferred stock warrants into warrants for common shares in connection with a Qualified IPO, conversion of the 2017 convertible notes at the $5.00 per share, the automatic conversion of the 2018 convertible notes at 80% of the initial public offering share price in a Qualified IPO, the removal of gains or losses resulting from the remeasurement of the redeemable convertible preferred stock warrant liability, the removal of the effect of the interest expense as it relates to the convertible notes, and the removal of losses resulting from the remeasurement of the derivative instrument related to convertible debt as the underlying rights lapse in connection with the IPO. Common shares issuable upon exercise of the warrants are considered to be outstanding for unaudited pro forma basic and diluted net loss per share as they are issuable at little consideration.
Unaudited pro forma basic and diluted loss per share is computed as follows (in thousands, except share and per share data):
Year ended
December 31, 2017 |
Six Months Ended
June 30, 2018 |
|||||||
(unaudited) | (unaudited) | |||||||
Numerator: |
||||||||
Net loss attributable to common stockholders |
$ | (27,936 | ) | $ | (16,329 | ) | ||
|
|
|
|
|||||
Adjust: Change in fair value of redeemable convertible preferred stock warrants |
$ | 1,260 | $ | 1,705 | ||||
Adjust: Change in fair value of 2018 derivative instrument |
$ | | $ | 764 | ||||
Adjust: Convertible notes interest expense and amortization of debt discount and issuance cost |
$ | 1,185 | $ | 3,317 | ||||
Pro forma net loss |
$ | (25,491 | ) | $ | (10,543 | ) | ||
Denominator |
||||||||
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted |
7,515,336 | 7,720,967 | ||||||
Adjust: Conversion of redeemable convertible preferred stock |
12,385,154 | 12,385,154 | ||||||
Adjust: Conversion of 2017 convertible notes |
978,560 | 2,497,722 | ||||||
Adjust: Conversion of redeemable convertible preferred stock warrants into common stock warrants |
195,890 | 500,000 | ||||||
Adjust: Conversion of 2018 convertible notes |
| 2,466,003 | ||||||
|
|
|
|
|||||
Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted |
21,074,940 | 25,569,847 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted |
$ | (1.21 | ) | $ | (0.41 | ) | ||
|
|
|
|
F-34
Kodiak Sciences Inc.
Notes to Consolidated Financial Statements (Continued)
15. 401(k) Plan
In 2011, the Company adopted a 401(k) retirement and savings plan covering all employees. The 401(k) plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service. The Company does not make matching contributions to the 401(k) plan on behalf of participants.
16. Related Party Transactions
Baker Bros. Advisors LP, which holds more than 5% of the Companys stock, purchased $6.6 million (unaudited) aggregate principal amount of 2018 convertible notes and $3.0 million aggregate principal amount of 2017 convertible notes and warrants to purchase an aggregate of 150,000 shares of the Companys Series B redeemable convertible preferred stock (see Note 6 and 12).
The Dustin Moskovitz Trust DTD 12/27/05, which holds more than 5% of the Companys stock, purchased $3.0 million (unaudited) aggregate principal amount of 2018 convertible notes and $5.0 million aggregate principal amount of 2017 convertible notes and warrants to purchase an aggregate of 250,000 shares of the Companys Series B redeemable convertible preferred stock (see Note 6 and 12).
17. Subsequent Events
The Company evaluated subsequent events through April 30, 2018, the date on which the consolidated financial statements were available for issuance.
In February 2018, the Company received $33.0 million in gross proceeds from the issuance of convertible notes (the 2018 convertible notes), of which the Company issued $31.2 million aggregate principal amount on February 2, 2018 and $1.8 million aggregate principal amount on February 23, 2018. Of $33.0 million aggregate principal amount of the 2018 convertible notes, $9.6 million were issued to related parties. Interest on the unpaid principal balance of the notes accrues from the date of issuance, and compounds monthly from February 28, 2018 at a rate of 6.0% per year and is payable at maturity. Unless converted, the 2018 convertible notes mature on the earlier of (1) December 1, 2020 and (2) the date of the consummation of a change of control.
The Companys obligations with respect to the 2018 convertible notes are unsecured and subordinated to its obligations with respect to the 2017 convertible notes. The 2018 convertible notes include covenants that restrict the Companys ability to issue capital stock, repurchase or redeem capital stock, dispose of assets, incur debt, incur liens and make distributions to stockholders, including dividends. The 2018 convertible notes have customary events of default.
The 2018 convertible notes will automatically convert into shares of the Companys common stock at a price equal to (1) 80% of the initial price to public in a qualified initial public offering if such offering is completed prior to February 2, 2019 and (2) 75% of the initial price to public in a qualified initial public offering if such offering is completed after February 2, 2019. A qualified initial public offering for the purposes of the 2018 convertible notes is one in which the Company generates aggregate gross proceeds of at least $75.0 million or all of the 2017 convertible notes convert into shares of the Companys common stock. In connection with an offering that does not constitute a qualified public offering, each holder of 2018 convertible notes may, at its option, elect to convert the principal amount and accrued interest of the 2018 convertible notes owned by such holder into shares of common stock at a price equal to (1) 80% of the initial price to public in such offering if such offering is completed prior to February 2, 2019 and (2) 75% of the initial price to public in such offering if such offering is completed after February 2, 2019.
18. Subsequent Events (unaudited)
In connection with the issuance of the unaudited interim consolidated financial statements, the Company has evaluated subsequent events through September 7, 2018, the date the consolidated financial statements were available to be reissued.
F-35
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered under this registration statement are as follows:
Amount to Be Paid | ||||
SEC registration fee |
$ | 19,329 | ||
FINRA filing fee |
23,788 | |||
Exchange listing fee |
125,000 | |||
Printing and engraving expenses |
425,000 | |||
Legal fees and expenses |
1,652,000 | |||
Accounting fees and expenses |
1,150,000 | |||
Transfer agent and registrar fees and expenses |
3,500 | |||
Miscellaneous |
201,384 | |||
|
|
|||
Total |
$ | 3,600,000 | ||
|
|
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that the person acted in good faith and in a manner the person reasonably believed to be in its best interests, and, with respect to any criminal action, had no reasonable cause to believe the persons actions were unlawful. The Delaware General Corporation Law further provides that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporations bylaws, any agreement, a vote of stockholders or otherwise. The certificate of incorporation of the registrant provides for the indemnification of the registrants directors and officers to the fullest extent permitted under the Delaware General Corporation Law. In addition, the bylaws of the registrant require the registrant to fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director, or officer of the registrant, or is or was a director or officer of the registrant serving at the registrants request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against 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, to the fullest extent permitted by applicable law.
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 duty as a director, except (1) for any breach of the directors duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for payments of unlawful dividends or unlawful stock repurchases, redemptions or other distributions or (4) for any transaction from which the director derived an improper personal benefit. The registrants certificate of incorporation provides that the registrants directors shall not be personally liable to it or its stockholders for monetary damages for breach of fiduciary duty as a director and that if the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of the registrants directors shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
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
II-1
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 separate indemnification agreements with each of the registrants directors and certain of the registrants officers which require the registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status as directors, officers or certain other employees.
The registrant expects to obtain and maintain insurance policies under which its directors and officers are insured, within the limits and subject to the limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been directors or officers. The coverage provided by these policies may apply whether or not the registrant would have the power to indemnify such person against such liability under the provisions of the Delaware General Corporation Law.
These indemnification provisions and the indemnification agreements entered into between the registrant and the registrants officers and directors may be sufficiently broad to permit indemnification of the registrants officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933.
The underwriting agreement between the registrant and the underwriters filed as Exhibit 1.1 to this registration statement provides for the indemnification by the underwriters of the registrants directors and officers and certain controlling persons against specified liabilities, including liabilities under the Securities Act with respect to information provided by the underwriters specifically for inclusion in the registration statement.
Item 15. Recent Sales of Unregistered Securities.
The following list sets forth information regarding all unregistered securities sold by us in the past three years.
No underwriters were involved in the sales, and the certificates representing the securities sold and issued contain legends restricting transfer of the securities without registration under the Securities Act or an applicable exemption from registration.
(a) |
From January 1, 2015 to September 24, 2018, we granted options to purchase 4,343,317 shares of our common stock with exercise prices ranging from $0.26 to $10.29 per share. |
(b) |
From January 1, 2015 to September 24, 2018, we issued and sold 954,889 shares of our common stock upon the exercise of options at exercise prices ranging from $0.09 to $1.04 per share. |
(c) |
From January 1, 2015 to September 24, 2018, we granted 1,158,370 shares of restricted common stock with prices per share ranging from $0.26 to $5.38 per share. |
(d) |
Between September 2015 and December 2015, we issued and sold to 13 accredited investors 6,792,000 shares of Series B redeemable convertible preferred stock at a purchase price of $5.00 per share. |
(e) |
On August 11, 2017, we issued and sold convertible notes in the aggregate principal amount of $10,000,000 to five accredited investors, including existing stockholders and their affiliates, and issued warrants to purchase 500,000 shares of our Series B redeemable preferred stock at a price of $0.01 per share to such accredited investors. |
(f) |
On February 2, 2018 and February 23, 2018, we issued and sold convertible notes in the aggregate principal amount of $33,000,000 to 12 accredited investors, including existing stockholders and their affiliates. |
(g) |
Between January 2015 and May 2015, we issued and sold to 21 accredited investors 2,448,564 shares of Series C-1 convertible preferred shares at a purchase price of $3.73 per share. Upon the closing of our Series B redeemable convertible preferred stock financing, all shares of Series C-1 convertible preferred shares were converted into Series A redeemable convertible preferred stock. |
II-2
The offers, sales and issuances of the securities described in Items 15(d), (e), (f) and (g) were exempt from registration under the Securities Act under Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving 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 person and had adequate access, through employment, business or other relationships, to information about the registrant.
The offers, sales and issuances of the securities described in Items 15(a), (b) and (c) were exempt from registration under the Securities Act under Section 4(a)(2) of the Securities Act in that such sales did not involve a public offering or under Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were the registrants employees, consultants or directors and received the securities under the registrants 2015 Share Incentive Plan. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions.
II-3
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following exhibits are filed as part of this registration statement.
II-4
+ |
Indicates a management contract or compensatory plan. |
** |
Previously filed |
(b) Financial statement schedules.
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) |
For purposes of determining any liability under the Securities Act 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 of 1933 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. |
II-5
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 Palo Alto, State of California, on September 24, 2018.
KODIAK SCIENCES INC. | ||
By: | /s/ Victor Perlroth | |
Victor Perlroth, M.D. Chief Executive Officer and Chairman |
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Victor Perlroth Victor Perlroth, M.D. |
Chairman and Chief Executive Officer (Principal Executive Officer) | September 24, 2018 | ||
/s/ John Borgeson John Borgeson |
Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) | September 24, 2018 | ||
* Felix J. Baker, Ph.D. |
Director | September 24, 2018 | ||
* Bassil I. Dahiyat, Ph.D. |
Director | September 24, 2018 | ||
* Richard S. Levy, M.D. |
Director | September 24, 2018 | ||
* Robert A. Profusek |
Director | September 24, 2018 |
*By | /s/ Victor Perlroth | |
Victor Perlroth, M.D. | ||
Attorney-in-Fact |
II-6
Exhibit 1.1
[] Shares
KODIAK SCIENCES INC.
COMMON STOCK, $0.0001 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
[], 2018
[], 2018
Morgan Stanley & Co. LLC
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, New York 10036
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
Kodiak Sciences Inc., a Delaware corporation (the Company ), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the Underwriters ), for whom Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives (the Representatives ), [] shares of its Common Stock, $0.0001 par value per share (the Firm Shares ). The Company also proposes to issue and sell to the several Underwriters not more than an additional [] shares of its Common Stock, $0.0001 par value per share (the Additional Shares ) if and to the extent that you, as Representatives, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the Shares. The shares of Common Stock, $0.0001 par value per share of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the Common Stock.
The Company has filed with the Securities and Exchange Commission (the Commission ) a registration statement on Form S-1 (333-227237), including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the Securities Act ), is hereinafter referred to as the Registration Statement ; the prospectus in the form first used to confirm sales of Shares (or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the Prospectus. If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement ), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement.
1
For purposes of this Agreement, free writing prospectus has the meaning set forth in Rule 405 under the Securities Act, Time of Sale Prospectus means the preliminary prospectus contained in the Registration Statement at the time of its effectiveness together with the documents and pricing information set forth in Schedule II hereto, and broadly available road show means a bona fide electronic road show as defined in Rule 433(h)(5) under the Securities Act that has been made available without restriction to any person. As used herein, the terms Registration Statement, preliminary prospectus, Time of Sale Prospectus and Prospectus shall include the documents, if any, incorporated by reference therein as of the date hereof.
Morgan Stanley & Co. LLC ( Morgan Stanley ) has agreed to reserve a portion of the Shares to be purchased by it under this Agreement for sale to the Companys directors, officers, employees and business associates and other parties related to the Company (collectively, Participants ), as set forth in the Prospectus under the heading Underwriting (the Directed Share Program ). The Shares to be sold by Morgan Stanley and its affiliates pursuant to the Directed Share Program, at the direction of the Company, are referred to hereinafter as the Directed Shares . Any Directed Shares not orally confirmed for purchase by any Participant by [7:00 A.M. Eastern Time] on the business day after which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.
1. Representations and Warranties of the Company . The Company represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Company, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain, as of the date of such amendment or supplement, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will, as of the date of such amendment or supplement, comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date (as defined in Section 4), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each
2
broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain, as of its date or the Closing Date, any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.
(c) The Company is not an ineligible issuer in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or, if filed after the effective time of this Agreement, will comply as of the date of such filing, in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Except for the free writing prospectuses, if any, identified in Schedule II hereto, and electronic road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free writing prospectus.
(d) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own or lease its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction (to the extent the concept of good standing is applicable in such jurisdiction) in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing (to the extent the concept of good standing is applicable in such jurisdiction) would not have a material adverse effect on the Company and its subsidiaries, taken as a whole (a Material Adverse Effect ).
(e) Each subsidiary of the Company has been duly organized, is validly existing and in good standing under the laws of the jurisdiction of its organization, has the corporate or other organizational power and authority to own or lease its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in
3
each jurisdiction (to the extent the concept of good standing is applicable in such jurisdiction) in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing (to the extent the concept of good standing is applicable in such jurisdiction) would not be reasonably likely to have a Material Adverse Effect; all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company or a subsidiary of the Company, free and clear of all liens, encumbrances, equities or claims.
(f) This Agreement has been duly authorized, executed and delivered by the Company.
(g) The authorized capital stock of the Company conforms as to legal matters in all material respects to the description thereof contained in each of the Time of Sale Prospectus and the Prospectus.
(h) The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable.
(i) The Shares have been duly authorized and, when paid for, issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights.
(j) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of (i) applicable law, (ii) the certificate of incorporation or bylaws of the Company, (iii) any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except, in the cases of clauses (i), (iii) and (iv), as would not reasonably be likely to have a Material Adverse Effect or adversely affect the ability of the Company to perform its obligations under this Agreement, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may have been previously obtained or may be required by the securities or Blue Sky laws of the various states or foreign jurisdictions or the rules and regulations of the Financial Industry Regulatory Authority ( FINRA ) in connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus.
4
(l) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject (i) other than proceedings accurately described in all material respects in the Time of Sale Prospectus and proceedings that would not have a Material Adverse Effect, or on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described in all material respects; and there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described in all material respects or filed as required.
(m) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.
(n) The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an investment company as such term is defined in the Investment Company Act of 1940, as amended.
(o) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ( Environmental Laws ), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, be reasonably likely to have a Material Adverse Effect.
(p) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, be reasonably likely to have a Material Adverse Effect.
5
(q) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement, except as otherwise have been validly waived or complied with in connection with the issuance and sale of the Shares contemplated hereby.
(r) (i) None of the Company or its subsidiaries or controlled affiliates, or any director, officer, or employee thereof, or, to the Companys knowledge, any agent or representative of the Company or of any of its subsidiaries or controlled affiliates, has taken any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment, giving or receipt of money, property, gifts or anything else of value, directly or indirectly, to any government official (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) ( Government Official ) in order to improperly influence official action in violation of, to the extent applicable to the Company or its subsidiaries, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act of 2010 of the United Kingdom, or any other applicable anti-bribery or anti-corruption laws (collectively, the Anti-Corruption Laws ); (ii) the Company and its subsidiaries and controlled affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintained and will continue to maintain policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; and (iii) neither the Company nor its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of the Anti-Corruption laws.
(s) The operations of the Company and its subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws ), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
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(t) (i) None of the Company, any of its subsidiaries, or any director, officer, or employee thereof, or, to the Companys knowledge, any agent, controlled affiliate or representative of the Company or any of its subsidiaries, is an individual or entity ( Person ) that is, or is owned or controlled by one or more Persons that are:
(A) the subject of any sanctions administered or enforced by the U.S. Department of Treasurys Office of Foreign Assets Control ( OFAC ), the United Nations Security Council ( UNSC ), the European Union ( EU ), Her Majestys Treasury ( HMT ), or other relevant sanctions authority (collectively, Sanctions ), or
(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Crimea, Cuba, Iran, North Korea and Syria).
(ii) The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:
(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(iii) For the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not knowingly engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(u) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, (i) the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) the Company has not purchased any of its outstanding capital stock other than from employees or other service providers in connection with such persons termination of service from the Company or its subsidiaries pursuant to equity compensation plans or agreements described in the Time of Sale Prospectus or in exercise of the Companys right of first refusal upon a
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proposed transfer, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock (other than the exercise of equity awards or grants of equity awards or forfeiture of equity awards outstanding as of such respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, in each case granted pursuant to the equity compensation plans described in the Time of Sale Prospectus), short-term debt or long-term debt of the Company and its subsidiaries, except in each case as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.
(v) Neither the Company nor its subsidiaries own any real property. The Company and its subsidiaries have good and marketable title to all personal property (other than intellectual property, which is addressed exclusively in Section 1(w)) owned by them which is material to the business of the Company and its subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus or such as do not materially affect the value of such property and do not interfere in any material respect with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and, to the knowledge of the Company, enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, in each case except as described in the Time of Sale Prospectus.
(w) Except as would not reasonably be expected to have a Material Adverse Effect, the Company and its subsidiaries own or possess or have the right to use, or can acquire on commercially reasonable terms, adequate rights to use all inventions, patents, trademarks, service marks, trade names, domain names, copyrights, licenses, technology, know-how (including trade secrets and other confidential information) and other unpatented and/or unpatentable intellectual property and proprietary or confidential information, systems or procedures (including all goodwill associated with the foregoing and all registrations and applications for registration of, the foregoing) (collectively, Intellectual Property ) employed by them to conduct their respective businesses as currently conducted by them and as currently proposed to be conducted by them in the Registration Statement and the Prospectus (the Company Intellectual Property ). Except as would not reasonably be expected to have a Material Adverse Effect, (i) the conduct of each of the respective businesses of the Company and its subsidiaries does not infringe, misappropriate or otherwise violate any Intellectual Property of others; (ii) the Company nor any of its subsidiaries has received written notice that any of the Company Intellectual Property that is owned by a third party has been obtained or is being used by the Company or one of its subsidiaries in violation of a contractual obligation binding
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on the Company or one of its subsidiaries; and (iii) there is no pending or, to the Companys knowledge, threatened action, suit, proceeding or claim (A) challenging the Companys or any subsidiary of the Companys rights in or to, or alleging the violation of any of the terms of, any of the Company Intellectual Property; (B) alleging that the Company or any of its subsidiaries has infringed, misappropriated or otherwise violated or conflicted with any Intellectual Property of any third party; or (C) challenging the validity, scope or enforceability of any Company Intellectual Property owned by or exclusively licensed to the Company or any of its subsidiaries. To the knowledge of the Company, except as would not reasonably be expected to have a Material Adverse Effect, no third party has infringed, misappropriated or otherwise violated or conflicted with any Company Intellectual Property owned by or exclusively licensed to the Company or any of its subsidiaries. All Company Intellectual Property owned by the Company or its subsidiaries is valid and enforceable, is owned solely by the Company or its subsidiaries, is owned free and clear of all liens, encumbrances, defects and other restrictions. The Company and its subsidiaries have at all times taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of all Company Intellectual Property, the value of which to the Company or any of its subsidiaries is contingent upon maintaining the confidentiality thereof. All founders, current and former employees, contractors, consultants and other parties involved in the development of Company Intellectual Property for the Company or any subsidiary of the Company have signed confidentiality and invention assignment agreements with the Company or such subsidiary of the Company, as applicable, pursuant to which the Company or subsidiary of the Company, as applicable, either (x) has obtained ownership of and is the exclusive owner of such Intellectual Property, or (y) has obtained a valid right to exploit such Intellectual Property, sufficient for the conduct of its business as currently conducted.
(x) No material labor dispute with the employees of the Company or any of its subsidiaries exists, except as described in the Time of Sale Prospectus, or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that would reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
(y) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as, in the Companys reasonable judgment, are prudent and customary in the businesses in which they are engaged; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not be reasonably likely to have a Material Adverse Effect, except as described in the Time of Sale Prospectus.
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(z) Any statistical and market-related data included in the Registration Statement, the Time of Sale Prospectus or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable and accurate in all material respects and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.
(aa) The Company and its subsidiaries have operated and currently are in compliance with all applicable rules, regulations and policies of the U.S. Food and Drug Administration and applicable foreign regulatory authorities (collectively, the Regulatory Authorities ) in all material respects.
(bb) The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, including, without limitation, from the Regulatory Authorities, except where the failure to obtain such certificates, authorizations or permits would not, singly or in the aggregate, be reasonably likely to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect, except as described in the Time of Sale Prospectus.
(cc) The studies, tests and preclinical and clinical trials conducted by the Company or its subsidiaries and, to the knowledge of the Company, any studies, tests and preclinical and clinical trials conducted on behalf of the Company or in which the Company has participated, were, and if still pending are, being conducted in all material respects in accordance with all applicable rules and regulations of the Regulatory Authorities and current Good Clinical Practices and Good Laboratory Practices; the descriptions of the results of such trials and studies contained in the Registration Statement, the Time of Sale Prospectus or the Prospectus are accurate and complete in all material respects and fairly present the data derived from such trials and studies; the Company has no knowledge of any other studies or trials not described in the Registration Statement, the Time of Sale Prospectus and the Prospectus, the results of which are inconsistent with or call into question the results described or referred to in the Registration Statement, the Time of Sale Prospectus and the Prospectus; neither the Company nor any of its subsidiaries have received any written notices, correspondence or other communications from any Regulatory Authority or any other governmental agency requiring or threatening the termination, material modification or suspension of any studies or trials that are described in the Registration Statement, the Time of Sale Prospectus and the Prospectus or the results of which are referred to in the Registration Statement, the Time of Sale Prospectus and the Prospectus, and, to the Companys knowledge, there are no reasonable grounds for the same.
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(dd) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles ( U.S. GAAP ) and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Time of Sale Prospectus, since the end of the Companys most recent audited fiscal year, there has been (i) no material weakness in the Companys internal control over financial reporting (whether or not remediated) and (ii) no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
(ee) Except as described in the Time of Sale Prospectus or in the Registration Statement, the Company has not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.
(ff) The Registration Statement, the Prospectus, the Time of Sale Prospectus and any preliminary prospectus comply, and any amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus, the Time of Sale Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program.
(gg) No consent, approval, authorization or order of, or qualification with, any governmental body or agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered.
(hh) The Company has not offered, or caused Morgan Stanley or any Morgan Stanley Entity as defined in Section 9 to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customers or suppliers level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
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(ii) The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested extensions thereof (except where the failure to file would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect) and have paid all taxes required to be paid thereon (except for cases in which the failure to pay would not be reasonably likely to have a Material Adverse Effect, or, except as currently being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of the Company), and no unpaid tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company nor any of its subsidiaries have any notice or knowledge of any unpaid tax deficiency which could reasonably be expected to be determined adversely to the Company or its subsidiaries and which could reasonably be expected to have) a Material Adverse Effect.
(jj) From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Securities Act (an Emerging Growth Company ). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(kk) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Water Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
(ll) As of the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, none of (A) the Time of Sale Prospectus, (B) any free writing prospectus, when considered together with the Time of Sale Prospectus, and (C) any individual Written Testing-the-Waters Communication, when considered together with the Time of Sale Prospectus, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
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2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I hereto opposite its name at $[] a share (the Purchase Price ).
On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase, severally and not jointly, up to [] Additional Shares at the Purchase Price, provided, however, that the amount paid by the Underwriters for any Additional Shares shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Firm Shares but not payable on such Additional Shares. You may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving written notice not later than 30 days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Each purchase date must be at least one business day after the written notice is given and may not be earlier than the closing date for the Firm Shares nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an Option Closing Date ), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares.
3. Terms of Public Offering . The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $[] a share (the Public Offering Price ) and to certain dealers selected by you at a price that represents a concession not in excess of $[] a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $[] a share, to any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at approximately 10:00 a.m., New York City time, on [], 2018, or at such other time on the same or such other date, not later than [], 2018, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the Closing Date .
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Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 2 or at such other time on the same or on such other date, in any event not later than [], 2018, as shall be designated in writing by you.
The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriters Obligations . The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [ ] p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the securities of the Company or any of its subsidiaries by any nationally recognized statistical rating organization, as such term is defined in Section 3(a)(62) of the Securities Exchange Act of 1934, as amended (the Exchange Act ); and
(ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus.
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(b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in Section 5(a)(i) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date (i) an opinion and (ii) a negative assurance letter of Wilson Sonsini Goodrich & Rosati, Professional Corporation, outside counsel for the Company, dated the Closing Date, in form and substance satisfactory to the Representatives.
(d) The Underwriters shall have received on the Closing Date an opinion of Knobbe Martens, outside intellectual property counsel for the Company, dated the Closing Date, in form and substance satisfactory to the Representatives.
(e) The Underwriters shall have received on the Closing Date (i) an opinion and (ii) a negative assurance letter of Davis Polk & Wardwell LLP, counsel for the Underwriters, dated the Closing Date, in form and substance satisfactory to the Representatives.
With respect to Section 5(c) and Section 5(e), Wilson Sonsini Goodrich & Rosati, Professional Corporation and Davis Polk & Wardwell LLP may state that their opinions and beliefs are based upon their participation in the preparation of the Registration Statement, the Time of Sale Prospectus and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified.
The opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, described in Section 5(c) above shall be rendered to the Underwriters at the request of the Company and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Representatives, from PricewaterhouseCoopers LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus; provided that the letter delivered on the Closing Date shall use a cut-off date not earlier than three days prior to the date hereof.
(g) The lock-up agreements, each substantially in the form of Exhibit A hereto, between you and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.
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(h) The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of the following:
(i) a certificate, dated the Option Closing Date and signed by an executive officer of the Company, confirming that the certificate delivered on the Closing Date pursuant to Section 5(b) hereof remains true and correct as of such Option Closing Date;
(ii) an opinion and negative assurance letter of Wilson Sonsini Goodrich & Rosati, Professional Corporation, outside counsel for the Company, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 5(c) hereof;
(iii) an opinion of Knobbe Martens, outside intellectual property counsel for the Company, dated the Option Closing Date, to the same effect as the opinion required by Section 5(d) hereof;
(iv) an opinion and negative assurance letter of Davis Polk & Wardwell LLP, counsel for the Underwriters, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 5(e) hereof;
(v) a letter dated the Option Closing Date, in form and substance satisfactory to the Representatives, from PricewaterhouseCoopers LLP, independent public accountants, substantially in the same form and substance as the letter furnished to the Underwriters pursuant to Section 5(f) hereof; provided that the letter delivered on the Option Closing Date shall use a cut-off date not earlier than two business days prior to such Option Closing Date; and
(vi) such other documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of such Additional Shares.
6. Covenants of the Company . The Company covenants with each Underwriter as follows:
(a) To furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(e) or 6(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.
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(b) Before amending or supplementing the Registration Statement, the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.
(c) To furnish to you a copy of each proposed free writing prospectus to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus to which you reasonably object.
(d) Not to take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.
(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to any dealer upon request, either amendments or supplements to the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so that the Time of Sale Prospectus, as amended or supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with applicable law.
(f) If, during such period after the first date of the public offering of the Shares as in the reasonable opinion of counsel for the Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements
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therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, not misleading, or if, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.
(g) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided, however, that nothing contained herein shall require the Company to qualify to do business in any jurisdiction, execute a general consent to service of process in any jurisdiction or to subject itself to taxation in any jurisdiction in which it is not otherwise subject.
(h) To make generally available to the Companys security holders and to you as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.
(i) To comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
(j) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Companys counsel and the Companys accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes
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payable thereon, (iii) the reasonable, documented cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(g) hereof, including filing fees and the reasonable, documented fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by FINRA (provided that the amount payable by the Company with respect to fees and disbursements of counsel for the Underwriters pursuant to subsections (iii) and (iv) shall not exceed $35,000), (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the Nasdaq Global Market, (vi) the cost of printing certificates, if any, representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants (not including the Underwriters and their representatives), and fifty percent (50%) of the cost of any aircraft chartered in connection with the road show (with the Underwriters agreeing to pay for the other fifty percent (50%)), (ix) the document production charges and expenses associated with printing this Agreement, (x) all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program and (xi) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8 entitled Indemnity and Contribution, Section 9 entitled Directed Share Program Indemnification and the last paragraph of Section 11 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.
(k) The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the Restricted Period (as defined in this Section 6).
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(l) If at any time following the initial distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication would include an untrue statement of a material fact or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
The Company also covenants with each Underwriter that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus (the Restricted Period ), (1) 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 Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock.
The restrictions contained in the preceding paragraph shall not apply to (a) the Shares to be sold hereunder, (b) the issuance by the Company of shares of Common Stock upon the exercise (including any net exercise) of an option or warrant or the conversion of a security outstanding on the date hereof of which the Representatives have been advised in writing, (c) the issuance by the Company of options, restricted stock units or restricted stock awards (including the Common Stock issued upon the settlement or exercise thereof) to employees, officers, directors, advisors or consultants of the Company pursuant to employee benefit plans (including equity incentive plans) described in the Time of Sale Prospectus and the Prospectus, (d) the filing by the Company of registration statements on Form S-8 with respect to employee benefit plans (including any employee benefit plans assumed pursuant to clause (f)), (e) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Restricted Period, or (f) the issuance by the Company of shares of Common Stock or securities convertible into, exchangeable for or that represent the right to receive Common Stock in connection with (1) the acquisition by the Company or any of its subsidiaries of the securities, business, technology, property or other assets of another person or entity or pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, (2) the Companys joint ventures, equipment leasing
20
arrangements, licensing transactions, collaborations, debt financings and other strategic transactions; provided that the aggregate number of shares of Common Stock that the Company may sell or issue or agree to sell or issue pursuant to clause (f) shall not exceed 5% of the total number of shares of Common Stock outstanding immediately following the completion of the transactions contemplated by this Agreement (including the Additional Shares, if and to the extent any Additional Shares are issued) and the Company shall cause each recipient of such securities to execute and deliver to the Representatives, on or prior to the issuance of such securities, a lock-up agreement on substantially the same terms as the lock-up letter described in Section 5(g) hereof to the extent and for the duration that such terms remain in effect at the time of the transfer.
If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 5(g) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees, if so required by FINRA Rule 5131 (or any successor provision thereto), to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver.
7. Covenants of the Underwriters . Each Underwriter severally covenants with the Company not to take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action of the Underwriter.
8. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show as defined in Rule 433(h) under the Securities Act (a road show), the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.
21
(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, any issuer free writing prospectus, road show, the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication.
(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the indemnified party ) shall promptly notify the person against whom such indemnity may be sought (the indemnifying party ) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonably incurred fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed in writing to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Representatives, in the case of parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.
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(d) To the extent the indemnification provided for in Section 8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters respective obligations to contribute pursuant to this Section 8 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall
23
be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, any person controlling any Underwriter or any affiliate of any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.
9. Directed Share Program Indemnification. (a) The Company agrees to indemnify and hold harmless Morgan Stanley, each person, if any, who controls Morgan Stanley within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each affiliate of Morgan Stanley within the meaning of Rule 405 of the Securities Act ( Morgan Stanley Entities ) from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation) shall be instituted involving any Morgan Stanley Entity in respect of which indemnity may be sought pursuant to Section 9(a), the Morgan Stanley Entity seeking indemnity, shall promptly notify the Company in writing and the Company, upon request of the Morgan Stanley Entity, shall retain counsel reasonably satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity and any others the Company may designate in such proceeding and shall pay the reasonably incurred fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Morgan Stanley Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Morgan Stanley Entity unless (i) the Company shall have agreed in writing to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Morgan Stanley Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests
24
between them. The Company shall not, in respect of the legal expenses of the Morgan Stanley Entities in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Morgan Stanley Entities. Any such separate firm for the Morgan Stanley Entities shall be designated in writing by Morgan Stanley. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the Morgan Stanley Entities from and against any loss or liability by reason of such settlement or judgment. The Company shall not, without the prior written consent of Morgan Stanley, effect any settlement of any pending or threatened proceeding in respect of which any Morgan Stanley Entity is or could have been a party and indemnity could have been sought hereunder by such Morgan Stanley Entity, unless such settlement includes an unconditional release of the Morgan Stanley Entities from all liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 9(a) is unavailable to a Morgan Stanley Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Company in lieu of indemnifying the Morgan Stanley Entity thereunder, shall contribute to the amount paid or payable by the Morgan Stanley Entity as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Morgan Stanley Entities on the other hand from the offering of the Directed Shares or (ii) if the allocation provided by clause 9(c)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(c)(i) above but also the relative fault of the Company on the one hand and of the Morgan Stanley Entities on the other hand in connection with any statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Morgan Stanley Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total underwriting discounts and commissions received by the Morgan Stanley Entities for the Directed Shares, bear to the aggregate Public Offering Price of the Directed Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, the relative fault of the Company on the one hand and the Morgan Stanley Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the Morgan Stanley Entities and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
25
(d) The Company and the Morgan Stanley Entities agree that it would not be just or equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Morgan Stanley Entities were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 9(c). The amount paid or payable by the Morgan Stanley Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the Morgan Stanley Entities in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Morgan Stanley Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such Morgan Stanley Entity has otherwise been required to pay. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
(e) The indemnity and contribution provisions contained in this Section 9 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Morgan Stanley Entity or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Directed Shares.
10. Termination . The Underwriters may terminate this Agreement by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, either of the New York Stock Exchange or the Nasdaq Global Market, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the Prospectus.
11. Effectiveness; Defaulting Underwriters . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is
26
not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement (other than for termination pursuant to clauses (i), (iii), (iv) or (v) of Section 10), the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the reasonable fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.
12. Entire Agreement . (a) This Agreement represents the entire agreement between the Company and the Underwriters with respect to the preparation of any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the Shares.
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(b) The Company acknowledges that in connection with the offering of the Shares: (i) the Underwriters have acted at arms length, are not agents of, and owe no fiduciary duties to, the Company or any other person, (ii) the Underwriters owe the Company only those duties and obligations set forth in this Agreement and (iii) the Underwriters may have interests that differ from those of the Company. The Company waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.
13. Counterparts . This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
14. Applicable Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.
15. Headings . The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.
16. Notices . All communications hereunder shall be in writing and effective only upon receipt and if to the Underwriters shall be delivered, mailed or sent to you in care of Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, One Bryant Park, New York, New York 10036, attention of Syndicate Department (facsimile: (646) 855-3073), with a copy to ECM Legal (facsimile: (212) 230-8730); and if to the Company shall be delivered, mailed or sent to 2631 Hanover Street, Palo Alto, California 94304.
[signature page follows]
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Very truly yours,
KODIAK SCIENCES INC. |
||
By: | ||
Name: | ||
Title: |
[ Signature Page to Underwriting Agreement ]
SCHEDULE II
Time of Sale Prospectus
1. |
Preliminary Prospectus issued [date] |
2. |
[identify all free writing prospectuses filed by the Company under Rule 433(d) of the Securities Act] |
3. |
[free writing prospectus containing a description of terms that does not reflect final terms, if the Time of Sale Prospectus does not include a final term sheet] |
4. |
[orally communicated pricing information such as price per share and size of offering if a Rule 134 pricing term sheet is used at the time of sale instead of a pricing term sheet filed by the Company under Rule 433(d) as a free writing prospectus] |
II-1
EXHIBIT A
FORM OF LOCK-UP LETTER
_____________, 2018
Morgan Stanley & Co. LLC
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, New York 10036
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
The undersigned understands that Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together, the Representatives ) propose to enter into an Underwriting Agreement (the Underwriting Agreement ) with Kodiak Sciences Inc., a Delaware corporation (the Company ), providing for the public offering (the Public Offering ) by the several Underwriters, including the Representatives (the Underwriters ), of shares (the Shares ) of the Common Stock, $0.0001 par value per share, of the Company (the Common Stock ).
To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus (the Restricted Period ) relating to the Public Offering (the Prospectus ), (1) 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 Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act )), by the undersigned or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to:
A-1
(a) transactions relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of Common Stock or other securities acquired in such open market transactions;
(b) transfers of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock (i) by bona fide gift, will or intestate succession; (ii) to the spouse, domestic partner, father, mother, siblings, aunts, uncles, nieces and nephews and lineal descendants and ancestors (each, an immediate family member ) of the undersigned or to a trust formed for the benefit of an immediate family member; (iii) if the undersigned is a corporation, partnership or other business entity (x) to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the undersigned or (y) as part of a disposition, transfer or distribution to limited partners, stockholders, equity holders or members of the undersigned; or (iv) if the undersigned is a trust, to a trustee or beneficiary of the trust; provided that in the case of any transfer or distribution pursuant to this clause (b), (A) each recipient shall sign and deliver a lock-up letter substantially in the form of this letter and (B) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of Common Stock, shall be required or voluntarily made during the Restricted Period, other than reports on Form 5;
(c) the transfer of shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock to the Company upon a vesting event of the Companys securities or upon the exercise of options or warrants to purchase the Companys securities, in each case on a cashless or net exercise basis or to cover tax withholding obligations of the undersigned in connection with such vesting or exercise, so long as such cashless exercise or net exercise is effected solely by the surrender of outstanding options or warrants (or the Common Stock issuable upon the exercise thereof) to the Company and the Companys cancellation of all or a portion thereof to pay the exercise price and/or withholding tax and remittance obligations, and provided no filing under Section 16(a) of the Exchange Act or any other public filing or disclosure of such receipt or transfer, shall be voluntarily made by or on behalf of the undersigned and any filing required under Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto that (i) the filing relates to the circumstances described in this clause (c), and (ii) no shares were sold by the reporting person;
(d) the exercise of options for cash to purchase shares of Common Stock granted under a stock incentive plan described in the Prospectus or the exercise of warrants for cash to purchase shares of Common Stock described in the Prospectus, provided , that the underlying shares of Common Stock continue to be subject to the restrictions set forth in this letter agreement, and that no filing under Section 16(a) of the Exchange Act or any other public filing or disclosure of such receipt or transfer, shall be voluntarily made by or on behalf of the undersigned, and any filing required under Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto that (i) the filing relates to the circumstances described in this clause (d), (ii) the shares received upon exercise of the option are subject to a lock-up agreement with the Underwriters of the Public Offering, and (iii) no shares were sold by the reporting person;
A-2
(e) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Restricted Period;
(f) the conversion of the outstanding Preferred Stock, par value $0.0001 per share, of the Company into shares of Common Stock, provided that such shares of Common Stock remain subject to the terms of this letter agreement;
(g) the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock to the Company, pursuant to agreements under which the Company has the option to repurchase such shares in connection with the undersigneds termination of employment with the Company or a right of first refusal with respect to transfers of such shares, provided that any related filing, if any, under Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto that the filing relates to the circumstances described in this clause (g);
(h) the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock that occurs pursuant to a qualified domestic order, in connection with a divorce settlement, provided that each of the Company and the undersigned shall make best efforts to ensure that each transferee shall sign and deliver a lock-up letter substantially in the form of this letter and no filing under Section 16(a) of the Exchange Act shall be made by or on behalf of the undersigned during the Restricted Period, unless such filing clearly indicates in the footnotes thereto that such transfer occurred by operation of law, pursuant to a qualified domestic order or in connection with a divorce settlement; or
(i) the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Common Stock involving a change of control (as defined below) of the Company occurring after the consummation of the Public Offering, that has been approved by the board of directors of the Company, provided , that if the tender offer, merger, consolidation or other such transaction is not completed, the Common Stock owned by the undersigned shall remain subject to the restrictions contained in this letter agreement. For purposes of this clause (i), change of control means the consummation of any bona fide third party tender offer, merger, consolidation or other similar transaction the result of which is that any person (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, other than the Company, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of more than 50% of total voting power of the voting stock of the Company.
In addition, the undersigned agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the Restricted Period, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the undersigneds shares of Common Stock except in compliance with the foregoing restrictions.
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If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Shares the undersigned may purchase in the Public Offering.
If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed or will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
The Representatives hereby consent to receipt of this letter agreement in electronic form and understand and agree that this letter agreement may be signed electronically. If any signature is delivered by facsimile transmission, electronic mail or otherwise by electronic transmission evidencing an intent to sign this letter agreement (including any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g. , www.docusign.com ), such facsimile transmission, electronic mail or other electronic transmission shall create a valid and binding obligation of the undersigned with the same force and effect as if such signature were an original. Execution and delivery of this letter agreement by facsimile transmission, electronic mail or other electronic transmission is legal, valid and binding for all purposes.
The undersigned understands that the Company and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigneds heirs, legal representatives, successors and assigns.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters.
The undersigned understands that, (i) if the Company informs the Representatives, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Public Offering, (ii) if the Underwriting Agreement (other than the provisions thereof that survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares to be sold thereunder, (iii) if the registration statement related to the Public Offering has been withdrawn prior to the execution of the Underwriting Agreement or (iv) the Underwriting Agreement is not executed on or before December 31, 2018 ( provided that the Company may by written notice to the undersigned prior to December 31, 2018 extend such date for a period of up to an additional three months), the undersigned shall be automatically released from all obligations under this letter agreement.
[ Signature page follows. ]
A-4
EXHIBIT B
FORM OF WAIVER OF LOCK-UP
_____________, 20__
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Kodiak Sciences Inc. (the Company ) of shares of common stock, $[ ] par value (the Common Stock ), of the Company and the lock-up letter dated , 2018 (the Lock-up Letter ), executed by you in connection with such offering, and your request for a [waiver] [release] dated , 20 , with respect to shares of Common Stock (the Shares ).
Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective , 20 ; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
Very truly yours,
Morgan Stanley & Co. LLC Merrill Lynch, Pierce, Fenner & Smith Incorporated Acting severally on behalf of themselves and the several Underwriters named in Schedule I to the Underwriting Agreement |
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By: |
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Name: | ||
Title: |
B-1
By: | ||
Name: | ||
Title: |
cc: Company
B-2
FORM OF PRESS RELEASE
Kodiak Sciences Inc.
[Date]
Kodiak Sciences Inc. (the Company ) announced today that Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, the lead book-running managers in the Companys recent public sale of shares of common stock, are [waiving][releasing] a lock-up restriction with respect to shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver][release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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Exhibit 3.1
KODIAK SCIENCES INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Kodiak Sciences Inc., a corporation organized and existing under the laws of the State of Delaware (the Corporation ), hereby certifies as follows:
A. The name of the Corporation is Kodiak Sciences Inc. The Corporation was originally formed as a Delaware limited liability company on June 22, 2009 under the name Oligasis, LLC and was converted into the Corporation under the name Kodiak Sciences Inc. on September 8, 2015.
B. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the DGCL ), and has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.
C. The Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as set forth in Exhibit A attached hereto.
IN WITNESS WHEREOF, Kodiak Sciences Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer on , 2018.
By: |
/s/ Victor Perlroth |
|
Victor Perlroth | ||
President and Chief Executive Officer |
Exhibit A
ARTICLE I
The name of the corporation is Kodiak Sciences Inc.
ARTICLE II
The address of the corporations registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, DE 19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
The total number of shares of stock that the corporation shall have authority to issue is 500,000,000, consisting of the following:
490,000,000 shares of Common Stock, par value $0.0001 per share. Each share of Common Stock shall entitle the holder thereof as of the applicable record date to one (1) vote on each matter submitted to a vote at a meeting of stockholders on which the holders of shares of Common Stock are entitled to vote.
10,000,000 shares of Preferred Stock, par value $0.0001 per share, which may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock, including without limitation authority to fix by resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in the Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
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ARTICLE V
Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, the number of directors that constitutes the entire Board of Directors of the corporation shall be fixed solely by resolution of the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board. For purposes of this Certificate of Incorporation, the term Whole Board shall mean the total number of authorized directorships whether or not there exist any vacancies or unfilled seats in previously authorized directorships. At each annual meeting of stockholders, directors of the corporation whose terms are expiring at such meeting shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and qualified or until their earlier resignation or removal.
Effective upon the effective date of the corporations initial public offering (the Effective Date ), the directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The Board of Directors may assign members of the Board of Directors already in office to such classes at the time such classification becomes effective. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the Effective Date, the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified.
Notwithstanding the foregoing provisions of this Article, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned by the Board of Directors among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
From and after the Effective Date, and subject to the rights of holders of Preferred Stock with respect to the election of directors, for so long as directors of the corporation shall be divided into classes, any director may be removed from office by the stockholders of the corporation only for cause. Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, and except as otherwise provided in the DGCL or as permitted in the specific case by resolution of the Board of Directors, vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, or by a sole remaining director, and not by stockholders. A person so chosen to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall be duly elected and qualified.
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ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the Bylaws of the corporation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. No stockholder will be permitted to cumulate votes at any election of directors.
ARTICLE VIII
8.1 Written Consent . From and after the Effective Date and subject to the rights of holders of any series of Preferred Stock, no action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws, and no action shall be taken by the stockholders by written consent.
8.2 Meetings of Stockholders . Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to call a special meeting of the holders of such series, special meetings of stockholders of the Corporation may be called only by the Board of Directors, the chairperson of the Board of Directors, the chief executive officer of the corporation or the president of the corporation (in the absence of a chief executive officer of the corporation), but a special meeting of stockholders may not be called by any other person or persons and the ability of the stockholders to call a special meeting is hereby specifically denied. The Board of Directors, acting pursuant to a resolution adopted by a majority of the Whole Board, or the chairperson of a meeting of stockholders may cancel, postpone or reschedule any previously scheduled meeting of stockholders at any time, before or after the notice for such meeting has been sent to the stockholders.
8.3 Advance Notice . Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws.
ARTICLE IX
To the fullest extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
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Neither any amendment nor repeal of this Article, nor the adoption of any provision of this corporations Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or proceeding accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Subject to any provisions in the Bylaws of the corporation related to indemnification of directors or officers of the corporation, the corporation may indemnify, to the fullest extent permitted by applicable law, any director or officer of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding ) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
The corporation shall have the power to indemnify, to the extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, any employee or agent of the corporation who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
A right to indemnification or to advancement of expenses arising under a provision of this Certificate of Incorporation or a bylaw of the corporation shall not be eliminated or impaired by an amendment to this Certificate of Incorporation or the Bylaws of the corporation after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
ARTICLE XI
Except as provided in ARTICLE IX and ARTICLE X above, the corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
The affirmative vote of the holders of at least 66 2/3% of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal Article V, VI, VII, VIII, IX, X or this Article XI of this Certificate of Incorporation.
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ARTICLE XII
The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An Excluded Opportunity is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, Covered Persons ), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director of the Corporation.
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TABLE OF CONTENTS
Page
ARTICLE ICORPORATE OFFICES |
1 | |||||
1.1 |
REGISTERED OFFICE | 1 | ||||
1.2 |
OTHER OFFICES | 1 | ||||
ARTICLE IIMEETINGS OF STOCKHOLDERS |
1 | |||||
2.1 |
PLACE OF MEETINGS | 1 | ||||
2.2 |
ANNUAL MEETING | 1 | ||||
2.3 |
SPECIAL MEETING | 1 | ||||
2.4 |
ADVANCE NOTICE PROCEDURES | 2 | ||||
2.5 |
NOTICE OF STOCKHOLDERS MEETINGS | 6 | ||||
2.6 |
QUORUM | 6 | ||||
2.7 |
ADJOURNED MEETING; NOTICE | 6 | ||||
2.8 |
CONDUCT OF BUSINESS | 7 | ||||
2.9 |
VOTING | 7 | ||||
2.10 |
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING | 7 | ||||
2.11 |
RECORD DATES | 8 | ||||
2.12 |
PROXIES | 8 | ||||
2.13 |
LIST OF STOCKHOLDERS ENTITLED TO VOTE | 9 | ||||
2.14 |
INSPECTORS OF ELECTION | 9 | ||||
ARTICLE IIIDIRECTORS |
10 | |||||
3.1 |
POWERS | 10 | ||||
3.2 |
NUMBER OF DIRECTORS | 10 | ||||
3.3 |
ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS | 10 | ||||
3.4 |
RESIGNATION AND VACANCIES | 10 | ||||
3.5 |
PLACE OF MEETINGS; MEETINGS BY TELEPHONE | 11 | ||||
3.6 |
REGULAR MEETINGS | 11 | ||||
3.7 |
SPECIAL MEETINGS; NOTICE | 11 | ||||
3.8 |
QUORUM; VOTING | 12 | ||||
3.9 |
BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING | 12 | ||||
3.10 |
FEES AND COMPENSATION OF DIRECTORS | 12 | ||||
3.11 |
REMOVAL OF DIRECTORS | 12 | ||||
ARTICLE IVCOMMITTEES |
13 | |||||
4.1 |
COMMITTEES OF DIRECTORS | 13 | ||||
4.2 |
COMMITTEE MINUTES | 13 | ||||
4.3 |
MEETINGS AND ACTION OF COMMITTEES | 13 | ||||
4.4 |
SUBCOMMITTEES | 14 | ||||
ARTICLE VOFFICERS |
14 | |||||
5.1 |
OFFICERS | 14 | ||||
5.2 |
APPOINTMENT OF OFFICERS | 14 | ||||
5.3 |
SUBORDINATE OFFICERS | 15 |
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TABLE OF CONTENTS
(continued)
Page
5.4 |
REMOVAL AND RESIGNATION OF OFFICERS | 15 | ||||
5.5 |
VACANCIES IN OFFICES | 15 | ||||
5.6 |
REPRESENTATION OF SECURITIES OF OTHER ENTITIES | 15 | ||||
5.7 |
AUTHORITY AND DUTIES OF OFFICERS | 15 | ||||
ARTICLE VISTOCK |
16 | |||||
6.1 |
STOCK CERTIFICATES; PARTLY PAID SHARES | 16 | ||||
6.2 |
SPECIAL DESIGNATION ON CERTIFICATES | 16 | ||||
6.3 |
LOST, STOLEN OR DESTROYED CERTIFICATES | 17 | ||||
6.4 |
DIVIDENDS | 17 | ||||
6.5 |
TRANSFER OF STOCK | 17 | ||||
6.6 |
STOCK TRANSFER AGREEMENTS | 17 | ||||
6.7 |
REGISTERED STOCKHOLDERS | 17 | ||||
ARTICLE VIIMANNER OF GIVING NOTICE AND WAIVER |
18 | |||||
7.1 |
NOTICE OF STOCKHOLDERS MEETINGS | 18 | ||||
7.2 |
NOTICE BY ELECTRONIC TRANSMISSION | 18 | ||||
7.3 |
NOTICE TO STOCKHOLDERS SHARING AN ADDRESS | 19 | ||||
7.4 |
NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL | 19 | ||||
7.5 |
WAIVER OF NOTICE | 19 | ||||
ARTICLE VIIIINDEMNIFICATION |
20 | |||||
8.1 |
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS | 20 | ||||
8.2 |
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION | 20 | ||||
8.3 |
SUCCESSFUL DEFENSE | 20 | ||||
8.4 |
INDEMNIFICATION OF OTHERS | 21 | ||||
8.5 |
ADVANCED PAYMENT OF EXPENSES | 21 | ||||
8.6 |
LIMITATION ON INDEMNIFICATION | 21 | ||||
8.7 |
DETERMINATION; CLAIM | 22 | ||||
8.8 |
NON-EXCLUSIVITY OF RIGHTS | 22 | ||||
8.9 |
INSURANCE | 22 | ||||
8.10 |
SURVIVAL | 22 | ||||
8.11 |
EFFECT OF REPEAL OR MODIFICATION | 23 | ||||
8.12 |
CERTAIN DEFINITIONS | 23 | ||||
ARTICLE IXGENERAL MATTERS |
23 | |||||
9.1 |
EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS | 23 | ||||
9.2 |
FISCAL YEAR | 23 | ||||
9.3 |
SEAL | 24 | ||||
9.4 |
CONSTRUCTION; DEFINITIONS | 24 | ||||
ARTICLE XAMENDMENTS |
24 | |||||
ARTICLE XIEXCLUSIVE FORUM |
24 |
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BYLAWS OF KODIAK SCIENCES INC.
ARTICLE ICORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of Kodiak Sciences Inc. shall be fixed in the corporations certificate of incorporation. References in these bylaws to the certificate of incorporation shall mean the certificate of incorporation of the corporation, as may be amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock.
1.2 OTHER OFFICES
The corporation may at any time establish other offices at any place or places.
ARTICLE IIMEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, determined by the board of directors. The board of directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the DGCL ). In the absence of any such designation or determination, stockholders meetings shall be held at the corporations principal executive office.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held on such date, at such time, and at such place (if any) within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the corporations notice of the meeting. At the annual meeting, directors shall be elected and any other proper business, brought in accordance with Section 2.4 of these bylaws, may be transacted. The board of directors, acting pursuant to a resolution adopted by a majority of the Whole Board (as such term is defined in the certificate of incorporation), or the chairperson of the meeting may cancel, postpone or reschedule any previously scheduled annual meeting at any time, before or after notice for such meeting has been sent to the stockholders.
2.3 SPECIAL MEETING
(i) A special meeting of the stockholders, other than those required by statute, may be called at any time only by (A) the board of directors, (B) the chairperson of the board of directors, (C) the chief executive officer or (D) the president (in the absence of a chief executive officer). A special meeting of the stockholders may not be called by any other person or persons. The board of directors or the chairperson of the meeting may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
(ii) The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the board of directors, the chairperson of the board of directors, the chief executive officer or the president (in the absence of a chief executive officer). Nothing contained in this Section 2.3(ii) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held.
2.4 ADVANCE NOTICE PROCEDURES
(i) Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be brought: (A) pursuant to the corporations proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations) (the 1934 Act ), and subsequently included in the notice of meeting given by or at the direction of the board of directors, for the avoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting of stockholders.
(a) To comply with clause (C) of Section 2.4(i) above, a stockholders notice must set forth all information required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, a stockholders notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding years annual meeting; provided , however , that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous years annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment, rescheduling or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described in this Section 2.4(i)(a). Public Announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
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(b) To be in proper written form, a stockholders notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be brought before the annual meeting, the text of the proposed business (including the text of any resolutions proposed for consideration) and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporations books, of the stockholder proposing such business and any Stockholder Associated Person (as defined below), (3) the class and number of shares of the corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the corporations voting shares required under applicable law to carry the proposal (such information provided and statements made as required by clauses (1) through (6), a Business Solicitation Statement ). In addition, to be in proper written form, a stockholders notice to the secretary must be supplemented not later than ten days following the record date for the determination of stockholders entitled to notice of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date for notice of the meeting. For purposes of this Section 2.4, a Stockholder Associated Person of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (i) and (ii).
(c) Without exception, no business shall be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such business not properly brought before the annual meeting shall not be conducted.
(ii) Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders. Nominations of persons for election or re-election to the board of directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice thereof in proper written form to the secretary of the corporation.
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(a) To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii) and must be received by the secretary of the corporation at the principal executive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above; provided, however, that in the event the number of directors to be elected to the board of directors is increased and there is no Public Announcement naming all of the nominees for director or specifying the size of the increased board made by the corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination pursuant to the foregoing provisions, a stockholders notice required by this Section 2.4(ii) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such Public Announcement is first made by the corporation.
(b) To be in proper written form, such stockholders notice to the secretary must set forth:
(1) as to each person (a nominee ) whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between or among the stockholder, any nominee or any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder or otherwise concerning such nomination or nominees board service, (F) a written statement executed by the nominee acknowledging and representing that the nominee intends to serve a full term on the board of directors, and (G) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election or re-election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation the nominees written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected or re-elected, as the case may be); and
(2) as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to business in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of a number of the corporations voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect or re-elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a Nominee Solicitation Statement ).
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(c) At the request of the board of directors, any person nominated by a stockholder for election or re-election as a director must furnish to the secretary of the corporation (1) that information required to be set forth in the stockholders notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such persons nomination was given and (2) such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director or audit committee financial expert of the corporation under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the corporation and (3) such other information that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholders nomination shall not be considered in proper form pursuant to this Section 2.4(ii).
(d) Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or in any other notice to the corporation or if the Nominee Solicitation Statement applicable to such nominee or any other relevant notice contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.
(iii) Advance Notice of Director Nominations for Special Meetings.
(a) For a special meeting of stockholders at which directors are to be elected or re-elected pursuant to Section 2.3, nominations of persons for election or re-election to the board of directors shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii) and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected or re-elected at such meeting. In no event shall any adjournment, rescheduling or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholders notice. A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or in any other notice to the corporation or if the Nominee Solicitation Statement applicable to such nominee or any other relevant notice contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading.
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(b) The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.
(iv) Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements of state law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4, including, with respect to business such stockholder intends to bring before the annual meeting that involves a proposal that such stockholder requests to be included in the corporations proxy statement, the requirements of Rule 14a-8 (or any successor provision) under the 1934 Act. Nothing in this Section 2.4 shall be deemed to affect any right of the corporation to omit a proposal from the corporations proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act.
2.5 NOTICE OF STOCKHOLDERS MEETINGS
Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, 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 is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such
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adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the board of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11 of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
2.8 CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business and discussion as seem to the chairperson to be in order. The chairperson of any meeting of stockholders shall have the power to adjourn the meeting to another place, if any, date or time, whether or not a quorum is present. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence of such designation, the chairperson of the board, if any, the chief executive officer (in the absence of the chairperson of the board) or the president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive officer of the corporation, shall serve as chairperson of the stockholder meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of the shares of such class or series or classes or series present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof that have been expressly granted the right to take action by written consent, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.
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2.11 RECORD DATES
In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
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 determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 2.11 at the adjourned meeting.
In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.
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2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. 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 corporations principal place of business. 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 a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such 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.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the corporation shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The corporation may designate one (1) or more persons as alternate inspectors to replace any inspector who fails to appear or fails or refuses to act.
Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed and designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspector or inspectors count of all votes and ballots.
In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspector or inspectors may consider such information as is permitted by applicable law. If there are multiple inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
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ARTICLE IIIDIRECTORS
3.1 POWERS
The business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution adopted by a majority of the Whole Board. No reduction of the authorized number of directors shall have the effect of removing any director before that directors term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such directors successor is elected and qualified or until such directors earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.
If so provided in the certificate of incorporation, the directors of the corporation shall be divided into three classes.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Unless otherwise provided in connection with a given resignation, acceptance of such resignation shall not be necessary to make it effective. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.
Unless otherwise provided in the certificate of incorporation or these bylaws or permitted in the specific case by resolution of the board of directors, and subject to the rights of any holders of preferred stock of the corporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by stockholders. If the directors are divided into classes, a person so chosen to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.
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3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors may hold meetings, both regular and special, either within or outside the State of Delaware.
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 or any subcommittee, may participate in a meeting of the board of directors, or any such committee or subcommittee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 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; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer, the president, the secretary or a majority of the Whole Board, at such times and places as he or she or they shall designate.
Notice of the time and place of special meetings shall be:
(i) delivered personally by hand, by courier or by telephone;
(ii) sent by United States first-class mail, postage prepaid;
(iii) sent by facsimile;
(iv) sent by electronic mail; or
(v) otherwise given by electronic transmission (as defined in Section 7.2),
directed to each director at that directors address, telephone number, facsimile number, electronic mail address or other contact for notice by electronic transmission, as the case may be, as shown on the corporations records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile, (iii) sent by electronic mail or (iv) otherwise given by electronic transmission, it shall be delivered, sent or otherwise directed to each director, as applicable, at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporations principal executive office) nor the purpose of the meeting, unless required by statute.
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3.8 QUORUM; VOTING
At all meetings of the board of directors, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
The affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
3.9 BOARD ACTION BY WRITTEN CONSENT 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 or subcommittee thereof, may be taken without a meeting if all members of the board of directors or committee or subcommittee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board of directors or committee or subcommittee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given for purposes of this Section 3.9 at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.
3.10 FEES AND 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.
3.11 REMOVAL OF DIRECTORS
For so long as the directors of the corporation may be divided into classes, unless otherwise provided in the certificate of incorporation, any director may be removed from office by the stockholders of the corporation only for cause.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such directors term of office.
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ARTICLE IVCOMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the Whole Board, 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 such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in these bylaws, 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 that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.
4.2 COMMITTEE MINUTES
Each committee and subcommittee shall keep regular minutes of its meetings and report the same to the board of directors, or the committee, when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
A majority of the directors then serving on a committee or subcommittee shall constitute a quorum for the transaction of business by the committee or subcommittee, unless the certificate of incorporation, these bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater or lesser number, provided that in no case shall a quorum be less than 1/3 of the directors then serving on the committee or subcommittee. The vote of the majority of the members of a committee or subcommittee present at a meeting at which a quorum is present shall be the act of the committee or subcommittee, unless the certificate of incorporation, these bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater number. Meetings and actions of committees and subcommittees shall otherwise be governed by, and held and taken in accordance with, the provisions of:
(i) Section 3.5 (place of meetings and meetings by telephone);
(ii) Section 3.6 (regular meetings);
(iii) Section 3.7 (special meetings and notice);
(iv) Section 3.8 (quorum; voting);
(v) Section 3.9 (action without a meeting); and
(vi) Section 7.5 (waiver of notice)
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with such changes in the context of those bylaws as are necessary to substitute the committee or subcommittee and its members for the board of directors and its members. However :
(i) the time and place of regular meetings of committees and subcommittees may be determined either by resolution of the board of directors or by resolution of the committee or subcommittee;
(ii) special meetings of committees and subcommittees may also be called by resolution of the board of directors or the committee or subcommittee; and
(iii) notice of special meetings of committees and subcommittees shall also be given to all alternate members, as applicable, who shall have the right to attend all meetings of the committee or subcommittee. The board of directors, or, in the absence of any such action by the board of directors, the committee or subcommittee, may adopt rules for the government of any committee or subcommittee not inconsistent with the provisions of these bylaws.
Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
4.4 SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the board of directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
ARTICLE VOFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.
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5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers as the business of the corporation may require. Each of such officers shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors or, except in the case of an officer chosen by the board of directors unless as otherwise provided by resolution of the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by the board of directors or as provided in Section 5.3.
5.6 REPRESENTATION OF SECURITIES OF OTHER ENTITIES
The chairperson of the board of directors, the chief executive officer, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the chief executive officer, the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares or other securities of any other entity or entities standing in the name of this corporation, including the right to act by written consent. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS
All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.
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ARTICLE VISTOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Unless otherwise provided by resolution of the board of directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of, the corporation by the chairperson of the board of directors or vice-chairperson of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation shall not have power to issue a certificate in bearer form.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly-paid shares, or upon the books and records of the corporation in the case of uncertificated partly-paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully-paid shares, the corporation shall declare a dividend upon partly-paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the 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. Within a reasonable time after the issuance or transfer of uncertificated stock, the registered owner thereof shall be given a notice, in writing or by electronic transmission, containing the information required to be set forth or stated on certificates pursuant to this Section 6.2 or Sections 156, 202(a), 218(a) or 364 of the DGCL or with respect to this Section 6.2 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. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
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6.3 LOST, STOLEN OR DESTROYED CERTIFICATES
Except as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4 DIVIDENDS
The board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the corporations capital stock. Dividends may be paid in cash, in property, or in shares of the corporations capital stock, subject to the provisions of the certificate of incorporation.
The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
6.5 TRANSFER OF STOCK
Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer; provided, however, that such succession, assignment or authority to transfer is not prohibited by the certificate of incorporation, these bylaws, applicable law or contract.
6.6 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.7 REGISTERED STOCKHOLDERS
The corporation:
(i) shall be entitled to treat the person registered on its books as the owner of any share or shares as the person exclusively entitled to receive dividends, vote, receive notifications and otherwise exercise all the rights and powers of an owner of such share or shares; and
(ii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIIMANNER OF GIVING NOTICE AND WAIVER
7.1 NOTICE OF STOCKHOLDERS MEETINGS
Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the corporations records. An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
7.2 NOTICE BY ELECTRONIC TRANSMISSION
Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:
(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
(ii) 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.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
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.
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An electronic transmission means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), 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.
Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.
7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
7.5 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, or the board of directors or a committee thereof, as the case may be, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
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ARTICLE VIIIINDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding ) (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such persons conduct was unlawful.
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith.
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8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the corporation shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate to such person or persons as it may designate the determination of whether employees or agents shall be indemnified.
8.5 ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys fees) actually and reasonably incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including attorneys fees) actually and reasonably incurred by former directors and officers or other current or former employees and agents of the corporation or by persons currently or formerly serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate (including any expense guidelines established by the corporation). The right to advancement of expenses shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 8.6(ii) or 8.6(iii) prior to a determination that the person is not entitled to be indemnified by the corporation.
8.6 LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):
(i) for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(ii) for an accounting or disgorgement of profits pursuant to Section 16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(iii) for any reimbursement of the corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the corporation, as required in each case under the 1934 Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), or the payment to the corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);
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(iv) initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise required by applicable law; or
(v) if prohibited by applicable law.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receipt by the corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The corporation shall indemnify such person against any and all expenses that are actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.
8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to action in another capacity while holding such office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
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8.11 EFFECT OF REPEAL OR MODIFICATION
A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to the certificate of incorporation or these bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan (excluding those in respect of any parachute payments within the meanings of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended); and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Article VIII.
ARTICLE IXGENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
9.2 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
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9.3 SEAL
The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term person includes both an entity and a natural person.
ARTICLE XAMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however , that the affirmative vote of the holders of at least 66 2/3% of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII, this Article X and Article XI (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other bylaw). The board of directors shall also have the power to adopt, amend or repeal bylaws.
ARTICLE XIEXCLUSIVE FORUM
Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporations stockholders, (iii) any action arising pursuant to any provision of the DGCL or the certificate of incorporation or these bylaws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten (10) days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court, or for which such court does not have subject matter jurisdiction.
Unless the corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933.
Any person or entity purchasing or otherwise acquiring any interest in any security of the corporation shall be deemed to have notice of and consented to the provisions of this Article XI.
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KODIAK SCIENCES INC.
CERTIFICATE OF AMENDMENT OF BYLAWS
The undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary or Assistant Secretary of Kodiak Sciences Inc., a Delaware corporation, and that the foregoing bylaws were amended and restated on , 2018 by the corporations board of directors.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand on , 2018.
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John Borgeson |
Secretary |
Exhibit 4.1
Exhibit 4.1 ZQ|CERT#|COY|CLS|RGSTRY|ACCT#|TRANSTYPE|RUN#|TRANS# COMMON STOCK PAR VALUE $0.0001 COMMON STOCK Certificate Number ZQ00000000 KODIAK SCIENCES INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE Shares * * 000000 ****************** * * * 000000 ***************** **** 000000 **************** ***** 000000 *************** ****** 000000 ************** THIS CERTIFIES THAT ** Mr. Alexander David Sample **** SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 50015M 10 9 is the owner of **000000**Shares**** MR. SAMPLE & MRS. SAMPLE & MR. SAMPLE & MRS. SAMPLE ***ZERO HUNDRED THOUSAND ZERO HUNDRED AND ZERO*** THIS CERTIFICATE IS TRANSFERABLE IN CITIES DESIGNATED BY THE TRANSFER AGENT, AVAILABLE ONLINE AT www.computershare.com FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF Kodiak Sciences Inc. (hereinafter called the Company), transferable on the books of the Company in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby, are issued and shall be held subject to all of the provisions of the Certificate of Incorporation, as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. President Secretary DATED DD-MMM-YYYY COUNTERSIGNED AND REGISTERED: COMPUTERSHARE TRUST COMPANY, N.A. TRANSFER AGENT AND REGISTRAR, By AUTHORIZED SIGNATURE PO BOX 43004, Providence, RI 02940-3004 MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 CUSIP/IDENTIFIER XXXXXX XX X Holder ID XXXXXXXXXX Insurance Value 1,000,000.00 Number of Shares 123456 DTC 12345678 123456789012345 Certificate Numbers Num/No. Denom. Total 1234567890/1234567890 1 1 1 1234567890/1234567890 2 2 2 1234567890/1234567890 3 3 3 1234567890/1234567890 4 4 4 1234567890/1234567890 5 5 5 1234567890/1234567890 6 6 6 Total Transaction 7
KODIAK SCIENCES INC. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian (Cust) (Minor) TEN ENT- as tenants by the entireties under Uniform Gifts to Minors Act (State) JT TEN- as joint tenants with right of survivorship UNIFTRF MIN ACT - Custodian (until age) and not as tenants in common (Cust) under Uniform Transfers to Minors Act (Minor) (State) Additional abbreviations may also be used though not in the above list. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE For value received, hereby sell, assign and transfer unto (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within-named Company with full power of substitution in the premises. Dated: 20 Signature: Signature: Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. Signature(s) Guaranteed: Medallion Guarantee Stamp THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. The IRS requires that the named transfer agent (we) report the cost basis of certain shares or units acquired after January 1, 2011. If your shares or units are covered by the legislation, and you requested to sell or transfer the shares or units using a specific cost basis calculation method, then we have processed as you requested. If you did not specify a cost basis calculation method, then we have defaulted to the first in, first out (FIFO) method. Please consult your tax advisor if you need additional information about cost basis. If you do not keep in contact with the issuer or do not have any activity in your account for the time period specified by state law, your property may become subject to state unclaimed property laws and transferred to the appropriate state.
Exhibit 4.2
Execution Version
KODIAK SCIENCES INC.
INVESTORS RIGHTS AGREEMENT
T HIS I NVESTORS R IGHTS A GREEMENT (this Agreement ) is made and entered into as of September 8, 2015, by and among K ODIAK S CIENCES I NC . , a Delaware corporation (the Company ), and each of the stockholders of the Company that has delivered a signature page hereto (the Investors ).
R ECITALS
W HEREAS , concurrently with the execution of this Agreement, the Company and certain of the Investors (the Purchasers ) are entering into a Series B Preferred Stock Purchase Agreement (the Purchase Agreement ) pursuant to which the Company will issue and sell to the Purchasers shares of the Companys Series B Preferred Stock, and the Purchasers will purchase such shares of Series B Preferred Stock on the terms and subject to the conditions set forth in the Purchase Agreement;
W HEREAS , the Companys and the Purchasers respective obligations under the Purchase Agreement are conditioned upon the execution of this Agreement as set forth herein; and
W HEREAS , in connection with the conversion of the Company from a limited liability company to a corporation, the Company desires to give the holders of the Companys Series A Preferred Stock certain rights hereunder.
N OW , T HEREFORE , in consideration of the foregoing recitals and the mutual covenants and agreements herein contained, the parties hereto agree as follows:
1. | Definitions . |
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
Affiliate means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person.
Certificate means the Companys Certificate of Incorporation, as amended from time to time.
Common Stock means the Companys common stock, par value $0.0001 per share.
Conversion Securities means (i) any Common Stock held by an Investor, (ii) any Common Stock issuable or issued upon conversion of the Preferred Stock now held or hereafter acquired by an Investor or as a dividend or other distribution with respect to, in exchange for, or in replacement of the Preferred Stock now held or hereafter acquired by an Investor, (iii) any Common Stock issuable or issued upon exercise of any warrants to purchase Common Stock (or exercise and conversion of warrants to purchase Preferred Stock) held by an Investor or as a distribution with respect to, in exchange for, or in
replacement of any warrants to purchase Common Stock (or Preferred Stock) held by an Investor, and (iv) any Common Stock issued as a dividend or other distribution with respect to, in exchange for, or in replacement of any of the Common Stock that constitutes Conversion Securities pursuant to (i), (ii) and (iii) above.
Form S-1 , Form S-3 , Form S-4 and Form S-8 mean such respective forms under the 1933 Act, as in effect on the date hereof or any successor registration forms to Form S-1, Form S-3, Form S-4 and Form S-8, respectively, under the 1933 Act subsequently adopted by the U.S. Securities and Exchange Commission (the SEC ) that, with respect to Form S-3, Form S-4 and Form S-8, permit (with the exception of Form S-4, in the case of any offering registered thereon) incorporation of substantial information by reference to other documents filed by the Company with the SEC.
GAAP means generally accepted accounting principles in the United States of America.
Holder means any Investor owning Registrable Securities (as defined below) or any assignee thereof in accordance with Section 2(m) hereof.
Immediate Family means, with respect to any natural person, each of such persons spouse, father, mother, brothers, sisters, aunts, uncles, nieces and nephews and lineal descendants and ancestors.
IPO means the Companys first sale of Common Stock in a public offering pursuant to a registration statement under the 1933 Act and in connection with which shares of Common Stock are admitted to trading on an internationally recognized stock market or quotation system.
New Securities means equity securities of the Company, whether now or hereafter authorized, or rights, options or warrants to purchase said equity securities, or securities of any type whatsoever that are, or may become, convertible into or exchangeable (directly or indirectly) into or exercisable for said equity securities.
Person means any individual or entity.
Preferred Stock means the Companys preferred stock authorized, issued and outstanding from time to time.
Qualified IPO means the Companys first sale of Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the 1933 Act at a per share public offering price (prior to underwriter commissions and expenses) of at least $10.00 (as adjusted for stock splits, combinations, dividends and the like) and that results in aggregate gross cash proceeds to the Company of an amount equal to or greater than $75,000,000 (before deduction of underwriting discounts, commissions and expenses).
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Register , registered and registration refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the 1933 Act, and the automatic effectiveness or the declaration or ordering of effectiveness of such registration statement or document.
Registrable Securities means any Conversion Securities; excluding in all cases, (i) any shares previously sold pursuant to a registered public offering or pursuant to an exemption from the registration requirements of the 1933 Act under which the transferee does not receive restricted securities, (ii) any shares otherwise sold by a person in a transaction in which his, her or its rights under Section 2 are not assigned pursuant to Section 2(m) , and (iii) any shares for which the registration rights have terminated pursuant to Section 2(o) .
A Subsidiary of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least 50% of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person.
2. | Registration Rights . |
(a) Request for Registration .
(1) If the Company shall receive at any time following the earlier of December 31, 2020 or 180 days after the effective date of the IPO, a written request from one or more Holders holding at least 50% of the Registrable Securities (on an as-converted into Common Stock basis) (the Holders initiating such request, the Initiating Holders ) that the Company effect the registration under the 1933 Act of Registrable Securities with an anticipated aggregate offering price of at least $30,000,000, then the Company shall:
(i) within ten (10) days of the receipt thereof, give written notice of
such request to all Holders,
(ii) subject to the limitations of this Section 2(a) , use its commercially reasonable efforts to effect a registration under the 1933 Act of all of such Initiating Holders Registrable Securities as are specified in such request, together with all of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company as soon as practicable, and
(iii) file, as promptly as reasonably practicable following receipt of such request of the Initiating Holders in all other cases, a registration statement under the 1933 Act covering all the Registrable Securities that the Holders shall in writing request to be included in such registration and to use its commercially reasonable efforts to have such registration statement declared effective.
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(2) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 2(a) and the Company shall include such information in the written notice referred to in Section 2(a)(i) . In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting (unless otherwise mutually agreed upon by the Company, Initiating Holders holding or having the right to receive at least a majority of the Registrable Securities that all Initiating Holders own or have the right to receive, and such Holder) to the extent provided herein. All parties proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2(d)(5) ) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Board of Directors of the Company (the Board ) and reasonably acceptable to a majority in interest of the Holders. Notwithstanding any other provision of this Section 2(a) , if, in the case of a registration requested pursuant to Section 2(a) , the underwriter advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise the Company and all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated pro rata among all Holders thereof desiring to participate in such underwriting (proportionate to the number of Registrable Securities then held by each such Holder). No Registrable Securities requested by any Holder to be included in a registration pursuant to Section 2(a) shall be excluded from the underwriting unless all securities other than Registrable Securities are first excluded (including any securities to be offered by the Company). To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriter may round the number of shares allocated to any Holder to the nearest 100 shares.
(3) Notwithstanding the foregoing provisions of this Section 2(a) , the Company shall not be obligated to effect, or take action to effect any registration pursuant to Section 2(a) after the Company has already effected two registrations initiated by the Holders pursuant to Section 2(a) ; provided , however , that no registration of Registrable Securities that shall not have become and remained effective in accordance with Section 2(d) shall be deemed to be a registration for any purpose of this Section 2(a) unless such registration was withdrawn at the request of the Holders except under the circumstances described in the last clause of the first sentence of Section 2(f) .
(4) Notwithstanding the foregoing provisions of this Section 2(a) , in the event that the Company is requested to file any registration statement pursuant to this Section 2(a) , the Company shall not be obligated to effect the filing of such registration statement:
(i) during the 90-day period following the effective date of any other registration statement on Form S-1 or S-3 pertaining to an underwritten public offering of securities for the account of the Company or any Holder; or
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(ii) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the 1933 Act; or
(iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2(c) below; or
(iv) if the Registrable Securities to be included in the registration statement could be sold without restriction of any manner under Rule 144 of the 1933 Act within a 90-day period and the Company is currently subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act; or
(v) if the Company shall furnish to the Holders requesting such registration statement a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board (as evidenced by a written resolution of the Board), it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed or to remain effective as long as such registration statement would otherwise be required to remain effective, the Company shall have the right to defer such filing for a period of not more than 180 days after receipt of the request for registration from the applicable Initiating Holders; provided , however , that the Company may not utilize the right set forth in this Section 2(a)(4)(v) more than once in any twelve-month period.
(b) Company Registration . If after the closing of the IPO the Company proposes (but without any obligation to do so) to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its capital stock or other equity securities (or securities convertible into equity securities) under the 1933 Act in connection with the public offering of such securities (other than a registration on Form S-8 relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a transaction described in Rule 145(a) of the 1933 Act, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered or a registration on Form S-4), the Company shall, at such time, promptly give each Holder of any Registrable Securities written notice of such registration. Upon the written request of any such Holder, given within ten (10) days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 2(h) and the following sentence of this Section 2(b) , use its commercially reasonable efforts to cause a registration statement covering all of the Registrable Securities that each such Holder has requested to be registered to become effective under the 1933 Act. The Company shall have the right, in its sole discretion, to terminate or withdraw, and shall otherwise be under no obligation to complete, any offering of its securities it proposes to make under this Section 2(b) and shall incur no liability to any Holder for its failure to do so, whether or not such Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be paid by the Company in accordance with Section 2(f) .
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(c) Form S-3 Registration .
(1) In case the Company shall receive from one or more Holders a written request or requests that the Company effect a registration on Form S-3 (or on any successor form to Form S-3 regardless of its designation) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:
(i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(ii) use its commercially reasonable efforts to effect such registration as soon as practicable, and in any event, to file within ninety (90) days of the receipt of such request a registration statement under the 1933 Act on Form S-3 covering all of the Registrable Securities which such Holders have requested to be registered and to use its commercially reasonable efforts to have such registration statement become effective, and to effect such qualification or compliance as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2(c) if: (1) Form S-3 (or any successor form to Form S-3 regardless of its designation) is not available for such offering by the Holders; (2) the aggregate gross proceeds (before deduction of underwriting discounts and commissions) of the Registrable Securities specified in such request is less than $10,000,000; (3) the Company shall furnish to the Holder or Holders requesting a registration statement pursuant to this Section 2(c) a certificate signed by the Companys Chief Executive Officer stating that, in the good faith judgment of the Board (as evidenced by a written resolution of the Board), it would not be in the best interests of the Company and its stockholders generally for such registration statement to be filed, in which event the Company shall have the right to defer such filing for a period of not more than one hundred eighty (180) days after receipt of the request of such Holder or Holders, provided that such right shall be exercised by the Company not more than once in any twelve (12)-month period; (4) the Company shall have effected three registrations pursuant to this Section 2(c) ; or (5) with respect to any particular jurisdiction, the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required under the 1933 Act; or (6) during the period ending one hundred eighty (180) days after the effective date of a registration statement filed pursuant to Section 2(a) .
(2) If the Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 2(c) and the Company shall include such information in the written notice referred to in Section 2(c)(1)(i) . The provisions of Section 2(a)(2) shall be applicable to such request (with the substitution of Section 2(c) for references to Section 2(a) ).
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(d) Obligations of the Company . Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably practicable:
(1) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of at least a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 90 days or until such earlier time at which the distribution of securities contemplated by such registration statement has been completed (such 90-day or shorter period, the Effectiveness Period );
(2) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and use its commercially reasonable efforts to cause each such amendment and supplement to become effective, as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement during the Effectiveness Period;
(3) furnish to the Holders, such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;
(4) use its commercially reasonable efforts to register or qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such states and jurisdictions as shall be reasonably requested by the Holders, except that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, subject itself to taxation or file a general consent to service of process in any such state or jurisdiction;
(5) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an underwriting agreement, including furnishing an opinion of counsel or entering into a lock-up agreement required pursuant to the provisions of Section 2(l) ;
(6) notify each Holder covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make
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the statements therein, in the light of the circumstances under which they were made, not misleading, and promptly file such amendments and supplements which may be required pursuant to Section 2(d)(2) on account of such event and use its commercially reasonable efforts to cause each such amendment and supplement to become effective;
(7) use its commercially reasonable efforts to have furnished, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2 , if such securities are being sold through underwriters, to such underwriters on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 2 : (i) an opinion or opinions, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a comfort letter dated such date, from the independent certified public accountant of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any;
(8) apply for listing and use its commercially reasonable efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Companys equity securities is then listed (or in the case of a registration pursuant to Section 2(a) , such national securities exchange as is requested by the Initiating Holders and agreed to by the Company);
(9) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed;
(10) after such registration statement becomes effective, notify each selling Holder in writing of any request by the SEC that the Company amend or supplement such registration statement or prospectus;
(11) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereto and a CUSIP number for all such Registrable Securities, in each case not later than on the effective date of such registration;
(12) notwithstanding any other provisions of this Agreement, from and after the time a registration statement filed under this Section 2 covering Registrable Securities is declared effective, the Company shall have the right to suspend the registration statement and the related prospectus in order to prevent premature disclosure of any material non-public information related to corporate developments by delivering notice of such suspension to the Holders, provided , however , that the Company may exercise the right to such suspension only once in any consecutive twelve (12) month period and for a period not to exceed ninety (90) days. From and after the date of a notice of suspension under this Section 2(d)(12), each Holder agrees not to use the registration statement or the related prospectus for resale of any Registrable Security until the earlier of (1) notice from the Company that such suspension has been lifted or (2) the ninetieth (90) day following the giving of the notice of suspension; and
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(13) without in any way limiting the types of registrations to which this Section 2 shall apply, in the event that the Company shall effect a shelf registration on Form S-1 or Form S-3 under Rule 415 promulgated under the 1933 Act, the Company shall take all reasonable action, including, without limitation, the filing of post-effective amendments, to permit the Holders to include their Registrable Securities in such registration in accordance with the terms of this Section 2 .
(e) Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 in respect of the Registrable Securities of any selling Holder that such selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities and the intended method of disposition of such securities, as shall be reasonably requested by the Company in connection with registration of its Registrable Securities.
(f) Expenses of Demand Registration . All expenses other than underwriters or brokers discounts and commissions relating to Registrable Securities incurred in connection with each registration, filing or qualification pursuant to Section 2(a) , including (without limitation) all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders (up to a maximum amount of $50,000), shall be borne and paid by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration begun pursuant to Section 2(a) if the registration request is subsequently withdrawn at any time at the request of the Holders of a majority of the Registrable Securities to be registered in such registration (in which case all participating Holders shall bear such expenses pro rata in accordance with the number of Registrable Securities that were to be registered thereunder by each such Holder), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 2(a) . All underwriters and brokers discounts and commissions relating to Registrable Securities included in any registration effected pursuant to Section 2(a) will be borne and paid ratably by the Holders of such Registrable Securities.
(g) Expenses of Company Registration and Form S-3 Registration . The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to any registration pursuant to Section 2(b) or Section 2(c) for each Holder including, without limitation, all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders (up to a maximum amount of $20,000). Underwriters and brokers discounts and commissions relating to Registrable Securities included in any registration effected pursuant to Section 2(b) or Section 2(c) will be borne and paid ratably by the Holders of such Registrable Securities on the basis of the number of Registrable Securities registered on their behalf.
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(h) Underwriting Requirements in Company Registration . In connection with any offering involving an underwriting of securities being issued by the Company, the Company shall not be required under Section 2(b) to include any of the Holders securities in such underwriting unless such Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity, if any, as the underwriters determine in their sole discretion, marketing factors allow. If the managing underwriter for the offering shall advise the Company in writing that the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that marketing factors allow, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the managing underwriter believes marketing factors allow (the securities so included to be reduced as follows: (a) all securities which stockholders other than the Company and the Holders seek to include in the offering shall first be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required, and (b) if further limitation on the number of shares to be included in the underwriting is required, then the number of shares held by the Holders that may be included in the underwriting shall be reduced pro rata in accordance with the number of Registrable Securities held by each such Holder at the time of such offering, but in no event shall the amount of securities of the selling Holders included in the offering be reduced below 25% of the total amount of securities included in such offering, other than the Companys IPO in which case the number of shares held by the Holders that may be included in the underwriting may be cut back to zero). For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, a partnership, a limited liability company or a corporation, the affiliated venture capital funds, partners, retired partners, members, retired members and stockholders of such Holder, or the estates and family members of such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing persons shall collectively be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such selling Holder, as defined in this sentence.
(i) Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .
(j) Indemnification . In the event any Registrable Securities are included in a registration statement under this Section 2 :
(1) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers, directors, partners, members, agents and employees of each Holder, legal counsel and accountants for each such holder, any underwriter (as defined in the 1933 Act) for such Holder and each person, if any, who controls such Holder or underwriter or other aforementioned person within the meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the 1933 Act, the 1934 Act or any other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a Violation ): (i) any untrue statement or
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alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, any issuer information (as defined in Rule 433 of the 1933 Act) filed or required to be filed pursuant to Rule 433(d) under the 1933 Act, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made in the case of any prospectus, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state or federal securities law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any state or federal securities law in connection with any matter relating to such registration statement. The Company will promptly reimburse each such Holder, officer, director, partner, member, agent, employee, legal counsel, accountants, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as incurred. The indemnity agreement contained in this Section 2(j)(1) shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed), nor shall the Company be liable to a Holder in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon (i) a Violation that occurs in reliance upon and in conformity with written information furnished to the Company expressly for use in such registration by or on behalf of such Holder or (ii) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution solely on behalf of such Holder), an untrue statement or alleged untrue statement or omission or alleged omission that was contained in a preliminary prospectus and corrected in a final, amended or supplemented prospectus (including a free writing prospectus) delivered to such Holder or underwriter a reasonable period of time prior to the time of such sale, and such Holder or underwriter failed to deliver a copy of such final, amended or supplemented prospectus (including a free writing prospectus) at or prior to the time of sale of the Registrable Securities to the person asserting any such loss, claim, damage or liability in any case in which the delivery of such final, amended or supplemented prospectus (including a free writing prospectus) would have eliminated such loss, claim, damage or liability.
(2) Each Holder that includes any Registrable Securities in any registration statement will furnish to the Company in writing such information as the Company reasonably requests for use in connection with any registration statement or prospectus and agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the 1933 Act, each other selling Holder and each person, if any, who controls a selling Holder within the meaning of the 1933 Act against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such director, officer, Holder or controlling person may become subject, under the 1933 Act, the 1934 Act or any other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder expressly for use in such registration, and each such
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Holder will promptly reimburse any legal or other expenses reasonably and actually incurred by the Company or any such director, officer, Holder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action, as incurred; provided , however , that the liability of any Holder hereunder shall be limited to the proceeds from the offering received by such Holder (net of any underwriting discounts, commissions or other selling expenses); and provided , further , that the indemnity agreement contained in this Section 2(j)(2) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld, conditioned or delayed), nor, in the case of a sale directly by the Company of its securities (including a sale of such securities through any underwriter retained by the Company to engage in a distribution solely on behalf of the Company), shall the Holder be liable to the Company in any case in which such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final, amended or supplemented prospectus (including a free writing prospectus), and the Company or such underwriter failed to deliver a copy of such final, amended or supplemented prospectus (including a free writing prospectus) at or prior to the time of sale of the securities to the person asserting any such loss, claim, damage or liability and the delivery of such final, amended or supplemented prospectus (including a free writing prospectus) would have eliminated such loss, claim, damage or liability. The obligations of the Holders hereunder are several, not joint.
(3) Promptly after receipt by an indemnified party under this Section 2(j) of notice of the commencement of any action (including any governmental action) for which the party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2(j) , deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume and control the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests, as reasonably determined by either party, between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of liability to the indemnified party under this Section 2(j) to the extent, and only to the extent, of such prejudice.
(4) In order to provide for just and equitable contribution to joint liability under the 1933 Act in any case in which either (i) any indemnified party exercising rights under this Agreement, or any controlling person of any such indemnified party, makes a claim for indemnification pursuant to this Section 2(j) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or
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the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2(j) provides for indemnification in such case, or (ii) contribution under the 1933 Act may be required on the part of any such indemnifying party or any such controlling person in circumstances for which indemnification is provided under this Section 2(j) , then, and in each such case, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damages or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damages or expense, as well as any other relevant equitable considerations; provided , however , that no contribution by any Holder, when combined with any other amounts paid by such Holder pursuant to this Section 2(j) , shall exceed the aggregate net proceeds received by such Holder in the offering. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the foregoing, in no event shall such Holders liability pursuant to this Section 2(j)(4) , when combined with any amounts paid or payable by such Holder pursuant to Section 2(j)(2) , exceed proceeds from the offering received by such Holder (net of any underwriting discounts, commissions or other selling expenses).
(5) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten offering, the obligations of the Company and the Holders under this Section 2(j) shall survive the sale, if any, of the Registrable Securities and the completion of any offering of Registrable Securities in a registration statement.
(k) Reports Under the 1934 Act . With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act ( Rule 144 ) and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, and with a view to making it possible for Holders to have the resale of the Registrable Securities registered pursuant to a registration statement on Form S-3, the Company shall use its commercially reasonable efforts to:
(i) make and keep adequate public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the registration statement for the IPO and for so long as the Company is subject to the periodic reporting requirements under Section 13 or Section 15(d) of the 1934 Act;
(ii) following the closing of the IPO, take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act or compliance with the reporting requirements of Section 15(D) of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities;
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(iii) after the closing of the IPO, file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and
(iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (1) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after 90 days after the closing of the IPO), the 1933 Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or as to its qualification as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (2) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and
(3) such other documents as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.
(l) Lock-up Agreement .
(1) If requested by the Company and/or any underwriters managing the IPO, each Investor agrees to not, and to enter into a lock-up agreement in the form proposed by the Company and/or the underwriters pursuant to which such Investor will not, (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities of the Company convertible into or exercisable or exchangeable for Common Stock owned by the Investor as of the effective date of the IPO, except the Registrable Securities sold in the IPO, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise, without the prior consent of the Company or the underwriter, provided that such lock-up time period shall not exceed 180 days from the effective date of the IPO or, if required by such underwriter, such longer period of time as is necessary to enable such underwriter to issue a research report or make a public appearance that relates to an earnings release or announcement by the Company within 18 days before or after the date that is 180 days after the effective date of the registration statement relating to such IPO, but in any event not to exceed 198 days following the effective date of the registration statement relating to such IPO; provided further that nothing in this Section 2(l) shall prohibit, and any lock-up agreement entered into hereunder shall permit, the transfer by a Holder to a member of such Holders Immediate Family or to an Affiliate of such Holder, so long as such transferee also agrees to enter into and be bound by a lock-up agreement substantially identical to the lock-up agreement required by this Section 2(l) . Any such lock up shall not apply to any Common Stock or any other securities purchased by an Investor in the IPO or any time subsequent to the IPO. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the
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securities of each Investor (and the shares of securities of every other person subject to the foregoing restriction) until the end of such period. Any underwriter, in connection with an underwritten offering pursuant to this Agreement, is an intended third-party beneficiary of this Section 2(l) and shall have the right, power and authority to enforce the provision hereof as though it were a party hereto.
(2) Each Investor agrees that a legend reading substantially as follows shall be placed on all certificates representing the securities of each Investor to be subject to such lock up (and the shares or securities of every other person subject to the restriction contained in this Section 2(l) until the expiration of the lock-up period):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF CERTAIN OF THE ISSUERS REGISTRATION STATEMENTS FILED UNDER THE SECURITIES ACT, AS MAY BE AMENDED FROM TIME TO TIME, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, AS MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE ISSUER. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
(m) Assignment of Registration Rights . The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by any Holder to a permitted transferee pursuant to this Section 2(m) and by such transferee to a subsequent permitted transferee, but only if such rights are transferred with all related obligations hereunder. A permitted transferee means (a) (i) an Affiliate of such Holder or transferee, (ii) any member or members of such Holders Immediate Family or a trust for the benefit of any member or members of such Holders Immediate Family, if by gift or bequest or through inheritance to, or for the benefit of, such person, (iii) a trust in respect of which such Holder serves as trustee, provided , however , that the trust instrument governing such trust shall provide that such Holder, as trustee, shall retain sole and exclusive control over the voting and disposition of such rights until the termination of this Agreement, or (iv) a limited partnership or limited liability company, all partners or members of which are members of such Holders Immediate Family, or (b) any person in connection with the sale or other transfer of at least an aggregate of 300,000 shares of such Holders Registrable Securities (as adjusted for stock splits, combinations, stock dividends and recapitalizations). No transfer may be made pursuant to this Section 2(m) to a transferee reasonably determined in good faith by written resolution of the Board to be, directly or indirectly, a competitor of the Company. In addition, no transfer may be made pursuant to this Section 2(m) , unless (A) the intended permitted transferee to whom rights under this Agreement are transferred shall have, as a condition to such transfer, previously delivered to the Company a written instrument by which such permitted transferee agrees to be bound by the obligations imposed upon Holders under this Agreement to the same extent as if such transferee were a
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Holder under this Agreement, (B) within a reasonable amount of time prior to such transfer the Company shall have been furnished with written notice of such transferees name and address, and the securities with respect to which such registration rights are being assigned; and (C) following such transfer, the further disposition of such Registrable Securities by the permitted transferee is restricted under the 1933 Act.
(n) Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities (assuming for these purposes the conversion of the Registrable Securities into Common Stock), enter into any agreement with any holder or prospective holder of any securities of the Company relating to registration rights unless such agreement includes:
(a) to the extent such agreement would allow such holder or prospective holder to include such securities in any registration statement filed under Section 2(a) , 2(b) or 2(c) hereof, a provision that such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of the Registrable Securities of the Holders that would otherwise be included; and (b) a provision preventing such holder or prospective holder from making a demand for registration.
(o) Termination of Registration Rights .
(1) The registration obligations of the Company pursuant to this Section 2 shall terminate with respect to any Holder on the first date upon which all of the remaining Registrable Securities then held or issuable to such Holder (together with its Affiliates, partners, members and former partners and former members) could be sold under Rule 144 without restriction.
(2) All registration obligations of the Company pursuant to this Section 2 shall terminate as to all Holders three (3) years after the closing date of the Qualified IPO.
(3) All registration obligations of the Company pursuant to this Section 2 shall terminate as to all Holders immediately prior to (i) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or (ii) a Change of Control (as such term is defined in the Certificate).
3. | Information Rights; No Publicity; IPO Participation Right . |
(a) Delivery of Financial Statements; Inspection Rights .
(1) The Company will furnish the following reports to each Investor holding at least 1,000,000 shares of the Companys Preferred Stock (as adjusted for any share splits, combinations, dividends or the like with respect to such shares) (a Major Investor ):
(i) as soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred eighty (180) days thereafter, a balance sheet of the Company as at the end of such fiscal year and statement of stockholders equity as of the end of such year, and statements of income and cash flows of the Company for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ( GAAP ), which will be audited and certified by an independent public accounting firm selected by the Company unless otherwise determined by the Board; and
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(ii) at least thirty (30) days after the beginning of each fiscal year, an
annual budget and forecast for such fiscal year, prepared on a quarterly basis.
(2) The Company shall permit each Major Investor, at such Major Investors expense, to visit and inspect the Companys properties, to examine its books of account and records and to discuss the Companys affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor.
(3) The Company shall not be obligated under this Section 3 to provide any information that (i) it deems in good faith to be a trade secret or similar confidential information or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel, as advised by counsel.
(b) Termination of Information and Inspection Covenants . The covenants set forth in Section 3(a) shall terminate and be of no further force or effect immediately prior to the earliest to occur of (i) the closing of the Qualified IPO, (ii) the time when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, or
(iii) the consummation of a Change of Control (as such term is defined in the Certificate).
(c) Confidentiality . Each Investor agrees, severally and not jointly, that such Investor will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Agreement or otherwise, and such Investor acknowledges that it will not, unless otherwise required by law or the rules of any national securities exchange, association or marketplace, disclose such information without the prior written consent of the Company except such information that (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3(c) by an Investor), or (ii) is or has been independently developed or conceived by the Investor without use of the Companys confidential information.
(d) IPO Participation Right . Subject to compliance at the time with all applicable securities laws and regulations, the Company will use commercially reasonable efforts (which shall include multiple attempts, on multiple dates, with multiple representatives of the managing underwriter(s), including oral and written communications with the most senior underwriter employees working on the IPO) to cause the managing underwriter(s) of the IPO to provide Baker Bros., provided Baker Bros. is a Major Investor immediately prior to the IPO, on the same terms, including the price per share, and subject to the same conditions, as are applicable to all other purchasers in the IPO, the option to purchase a number of shares of Common Stock being issued in the IPO equal to up to twenty-five percent (25%) of the total number of shares of Common Stock offered for sale in the IPO (the New IPO Shares). Baker Bros. may elect to allocate such New IPO Shares among the funds which it advises in its sole discretion.
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(e) No Publicity . The Company agrees that it will not, without the prior written consent of Baker Bros., use in advertising, publicity or marketing communications regarding the Companys Series B Preferred Stock financing (whether oral or written) or other public communication or filing, the Baker Bros. name or, to the Companys knowledge, the name of any partner or employee thereof, nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, or contraction thereof owned by Baker Bros., except that the Company may make any such disclosure if, upon the advice of counsel, there is no alternative to such disclosure because it is required by applicable law or regulation, and Baker Bros. is notified of such obligation in advance and given reasonable opportunity to minimize such disclosure. Notwithstanding the foregoing, the Company may disclose the name of Baker Bros. in connection with the provision of any details regarding this Agreement or the Related Agreements (as defined in the Purchase Agreement) and the transactions contemplated hereby and thereby to any of its executive officers, directors, stockholders, accountants, counsel and financial advisors with a need to know such information, provided that such recipient is notified of the foregoing confidentiality obligations.
4. | Preemptive Rights . |
(a) Content of Preemptive Right . Subject to the terms and conditions specified in this Section 4 and applicable securities laws, in the event the Company proposes to offer or sell any New Securities, the Company shall first make an offering of such New Securities to each Investor holding at least 100,000 shares of the Companys Preferred Stock (as adjusted for any share splits, combinations, dividends or the like with respect to such shares) (a ROFR Investor ) in accordance with the provisions of this Section 4 .
(b) Offer Notice . The Company shall deliver a notice, in accordance with the provisions of Section 5(a) hereof, (the Offer Notice ) to each of the ROFR Investors stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms upon which it proposes to offer such New Securities.
(c) Exercise of Preemptive Right . By written notification received by the Company within ten (10) days after receipt of the Offer Notice, each of the ROFR Investors may elect to purchase or obtain, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the number of shares of Common Stock issuable or issued upon conversion of Preferred Stock (and any other securities convertible into, or otherwise exercisable or exchangeable for, shares of Common Stock) then held by such ROFR Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all outstanding convertible and/or exercisable securities including outstanding options and warrants and including the ungranted option pool provided for in any equity plan established by the Company and approved by the Board) and held by all securityholders of the Company.
(d) Undersubscription . If all New Securities referred to in the Offer Notice are not elected to be fully purchased or obtained as provided in Section 4(c) , the Company may, during the one hundred fifty (150) day period following the expiration of the period provided in Section 4(c) , offer, sell or agree to sell the remaining unsubscribed portion of such New
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Securities (collectively, the Refused Securities ) to any person or persons at a price not less than, and upon terms not materially more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within sixty (60) days after the end of such one hundred fifty (150) day period, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Investors in accordance with this Section 4 .
(e) Exempt Issuance . The preemptive right in this Section 4 shall not be applicable to the issuance or sale of: (i) any shares issued pursuant to the Purchase Agreement; (ii) any Excluded Stock, as such term is defined in the Certificate, including any options or rights to subscribe for or purchase Excluded Stock or securities by their terms convertible into or exchangeable for Excluded Stock or options to purchase or rights to subscribe for or purchase such convertible or exchangeable securities for Excluded Stock; (iii) any securities that, with approval of the Board, are not offered to any existing stockholder of the Company; (iv) shares as to which the application of this Section 4 is waived by (x) Holders holding a majority of the outstanding Registrable Securities or (y) the Board. In addition to the foregoing, the preemptive right in this Section 4 shall not be applicable with respect to any ROFR Investor in any offering of New Securities if (A) at the time of such offering, the Investor is not an accredited investor, as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (B) such offering of the New Securities is otherwise being offered only to accredited investors and/or Persons other than U.S. Persons (as defined in Rule 902 under the Securities Act).
(f) Assignability . The preemptive right set forth in this Section 4 may not be assigned or transferred except that such right is assignable by each ROFR Investor to any Affiliate of such ROFR Investor.
(g) Termination . The preemptive right set forth in this Section 4 shall terminate upon the earlier of: (i) immediately prior to the consummation of the Qualified IPO, or (ii) immediately prior to the consummation of a Change of Control (as such term is defined in the Certificate). The preemptive right set forth in this Section 4 shall terminate with respect to any ROFR Investor who fails to purchase, in any transaction subject to this Section 4 , all of such ROFR Investors pro rata amount of the New Securities allocated (or, if less than such ROFR Investors pro rata amount is offered by the Company, such lesser amount so offered) to such ROFR Investor pursuant to this Section 4 . Following any such termination, such ROFR Investor shall no longer be deemed a ROFR Investor for any purpose of this Section 4 .
5. | Miscellaneous . |
(a) Notices . Any notice or other communication required or permitted to be delivered to any party under this Agreement will be in writing and will be deemed delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service, by e-mail or by facsimile) to the address, e-mail address or facsimile telephone number set forth beneath the name of such party below (or to such other address, e-mail address or facsimile telephone number as such party will have specified in a written notice given to the other parties hereto):
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(i) | if to the Company: |
Kodiak Sciences Inc.
2631 Hanover Street
Palo Alto, California 94304
Attention: Victor Perlroth
E-mail: vperlroth@kodiaksciences.com
with a copy (which shall not constitute notice) to:
Jones Day
1755 Embarcadero Road
Palo Alto, California 94303
Attention: David B. SIkes
Facsimile: (650) 739-3900
(ii) | if to an Investor: |
To the address, e-mail address or facsimile telephone number of such Investor indicated on such Investors signature page.
(b) Entire Agreement . This Agreement (including the exhibits hereto) and the documents mentioned herein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede any and all prior understandings and agreements, whether written or oral, with respect to such subject matter.
(c) Amendments, Waivers and Consents . Any term of this Agreement (other than Section 3 and Section 4 ) may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of a majority of the shares of Common Stock and Preferred Stock, voting together as a single class, with the Preferred Stock voting on an as-converted into Common Stock basis. The provisions of Section 3 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) in a manner that materially decreases the rights of Major Investors hereunder only with the written consent of the Company and the Major Investors holding a majority of the Registrable Securities that are held by all of the Major Investors. The provisions of Section 4 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only as set forth in Section 4 or with the written consent of the Company and the ROFR Investors holding a majority of the Registrable Securities that are held by all of the ROFR Investors. Any amendment, termination or waiver effected in accordance with this Section 5(c) shall be binding on all parties hereto (including future Investors), even if they do not execute such consent. No consent shall be necessary to add additional Persons as signatories to this Agreement, provided that such Persons shall hold or have acquired shares of the Companys capital stock.
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(d) Binding Effect; Assignment . This Agreement and any amendment or waiver affected in accordance with Section 5(c) shall be binding upon and inure to the benefit of the personal representatives, successors and permitted assigns of the respective parties hereto. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of holders of at least a majority of the Registrable Securities held by Investors. Except with respect to the indemnified persons contemplated by Section 2(j) who are intended third party beneficiaries of this Agreement and except as otherwise expressly provided for herein, nothing in this Agreement is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.
(e) Titles and Subtitles . The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to Sections and Exhibits will mean Sections and Exhibits to this Agreement.
(f) Governing Law; Dispute Resolution . This Agreement shall be governed by and construed under the laws of the State of Delaware in all respects as such laws are applied to agreements among Delaware residents entered into and performed entirely within Delaware, without giving effect to conflict of law principles thereof. The parties agree that any action brought by either party under or in relation to this Agreement, including without limitation to interpret or enforce any provision of this Agreement, shall be brought in, and each party agrees to and does hereby submit to the jurisdiction and venue of, any state or federal court located in the county where the Companys principal office is located.
(g) Severability . In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement shall continue in full force and effect and shall be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto shall use their commercially reasonable efforts to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
(h) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
(i) Specific Performance . The Company recognizes that the rights of the Holders under this Agreement are unique, and, accordingly, the Holders shall, in addition to such other remedies as may be available to them at law or in equity, have the right to enforce their rights hereunder by actions for injunctive relief and specific performance to the extent permitted by law. This Agreement is not intended to limit or abridge any rights of the Holders which may exist apart from this Agreement.
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(j) Aggregation of Stock . All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
[Remainder of Page Intentionally Left Blank]
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I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
COMPANY:
KODIAK SCIENCES INC. |
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By: |
/s/ Victor Perlroth |
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Name: | Victor Perlroth | |
Title: | Chief Executive Officer |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
667, L.P.
By: | BAKER BROS. ADVISORS LP, management company and investment adviser to 667 , L.P., pursuant to authority granted to it by Baker Biotech Capital, L.P., general partner to 667, L.P., and not as the general partner. | |||
By: | /s/ Scott L. Lessing | |||
Name: | Scott L. Lessing | |||
Title: | President |
Contact information for notices hereunder:
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
BAKER BROTHERS LIFE SCIENCES, L.P.
By: | BAKER BROS. ADVISORS LP, management company and investment adviser to Baker Brothers Life Sciences, L.P., pursuant to authority granted to it by Baker Brothers Life Sciences Capital, L.P., general partner to Baker Brothers Life Sciences, L.P., and not as the general partner. | |||
By: | /s/ Scott L. Lessing | |||
Name: | Scott L. Lessing | |||
Title: | President |
Contact information for notices hereunder:
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Matt Altman |
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Print Investors Name | Name of the Entity | |||
/s/ Matt Altman |
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Investors Signature | Signature | |||
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Title |
Contact information for notices hereunder:
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Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Asia Intelligence Holdings Limited |
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Print Investors Name | Name of the Entity | |||
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/s/ Rong Lu |
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Investors Signature | Signature | |||
Rong Lu |
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Print Name | ||||
Director |
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Title |
Contact information for notices hereunder:
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Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
John Bedbrook |
Bedbrook Survivors Trust |
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Print Investors Name | Name of the Entity | |||
/s/ John Bedbrook |
/s/ John Bedbrook |
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Investors Signature | Signature | |||
John Bedbrook |
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Derek Berry |
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Print Investors Name | Name of the Entity | |||
/s/ Derek Berry |
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Investors Signature | Signature | |||
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Title |
Contact information for notices hereunder:
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Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Jack Cabala |
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Print Investors Name | Name of the Entity | |||
/s/ Jack Cabala |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
John K. Cabala |
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Print Investors Name | Name of the Entity | |||
/s/ John K. Cabala |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Stephen A. Charles |
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Print Investors Name | Name of the Entity | |||
/s/ Stephen A. Charles |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
David Collet |
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Print Investors Name | Name of the Entity | |||
/s/ David Collet |
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Investors Signature | Signature | |||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Michelle Hocking De Geest |
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Print Investors Name | Name of the Entity | |||
/s/ Michelle Hocking De Geest |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Francois Guy Drouin Revocable Trust Dated Feb 25, 2010 |
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Print Investors Name | Name of the Entity | |||
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/s/ Francois Drouin, Trustee |
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Investors Signature | Signature | |||
Francois Drouin, Trustee |
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Jean P Drovin Revocable Trust |
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Print Investors Name | Name of the Entity | |||
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/s/ Jean Drovin |
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Investors Signature | Signature | |||
Jean Drovin |
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Print Name | ||||
Trustee |
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Karl Englest |
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Print Investors Name | Name of the Entity | |||
/s/ Karl Englest |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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ERNEST J. GALLO 1993 PERSONAL TRUST |
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Print Investors Name | Name of the Entity | |||
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/s/ ERNEST J. GALLO |
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Investors Signature | Signature | |||
ERNEST J. GALLO |
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Print Name | ||||
TRUSTEE |
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Michael A Fournel |
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Print Investors Name | Name of the Entity | |||
/s/ Michael A Fournel |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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GC&H Investments, LLC |
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Print Investors Name | Name of the Entity | |||
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/s/ Jim Kindler |
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Investors Signature | Signature | |||
Jim Kindler |
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Print Name | ||||
Manager |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Goodman Barinaga Charitable Trust dated 9/18/07 |
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Print Investors Name | Name of the Entity | |||
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/s/ Corey Goodman |
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Investors Signature | Signature | |||
Corey Goodman |
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Print Name | ||||
Managing Partner - Trustee |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Alan Grayce |
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Print Investors Name | Name of the Entity | |||
/s/ Alan Grayce |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Nahum Guzik |
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Print Investors Name | Name of the Entity | |||
/s/ Nahum Guzik |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Ketchum Capital, LLC |
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Print Investors Name | Name of the Entity | |||
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/s/ Karl Englert |
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Investors Signature | Signature | |||
Karl Englert |
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Print Name | ||||
Manager |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Bruce Keyt |
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Print Investors Name | Name of the Entity | |||
/s/ Bruce Keyt |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Michael Kiparsky |
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Print Investors Name | Name of the Entity | |||
/s/ Michael Kiparsky |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
[ILLEGIBLE] |
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Print Investors Name | Name of the Entity | |||
[ILLEGIBLE] |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
James Montazee |
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Print Investors Name | Name of the Entity | |||
/s/ James Montazee |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR: | ||||
DUSTIN A. MOSKOVITZ TTEE DUSTIN A. MOSKOVITZ TRUST DTD 12/27/05 |
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By: |
/s/ Jed Clark |
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Name: | Jed Clark | |||
Title: | Authorized Signatory |
Contact information for notices hereunder: | ||||
Address: | ||||
Attn: | ||||
Fax: | ||||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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The OBrien Family Trust |
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Print Investors Name | Name of the Entity | |||
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/s/ Eric OBrien |
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Investors Signature | Signature | |||
Eric OBrien |
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Print Name | ||||
Trustee |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title. | |||
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John S Osterweis, trustee for the Osterweis Receivable Trust dated 4/13/18 |
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Print Investors Name | Name of the Entity | |||
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/s/ John S Osterweis |
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Investors Signature | Signature | |||
John S Osterweis |
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Print Name | ||||
Trustee |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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PAUL AND MORCIA COOK LIVING TRUST |
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Print Investors Name | Name of the Entity DATED 4-21-92 | |||
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/s/ PAUL M. COOK |
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Investors Signature | Signature | |||
PAUL M. COOK, TRUSTEE |
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Print Name | ||||
TRUSTEE |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Paul L Beckman |
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Print Investors Name | Name of the Entity | |||
/s/ Paul L Beckman |
/s/ Paul L Beckman/ Linda S Beckman |
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Investors Signature | Signature | |||
Paul L Beckman/ Linda S Beckman |
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
D. Victor Perlroth |
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Print Investors Name | Name of the Entity | |||
/s/ D. Victor Perlroth |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
MLPF&S FBO Daniel Victor Perlroth |
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Print Investors Name | Name of the Entity | |||
/s/ Victor Perlroth |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Mark G. Perlroth |
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Print Investors Name | Name of the Entity | |||
/s/ Mark G. Perlroth |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Frank Perlroth |
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Print Investors Name | Name of the Entity | |||
/s/ Frank Perlroth |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR: | ||||
Sarah Nicole Perlroth | ||||
By: |
/s/ Sarah Nicole Perlroth |
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Name: | Sarah Nicole Perlroth | |||
Title: | n/a |
Contact information for notices hereunder: | ||||
Address: | ||||
Attn: | ||||
Fax: | ||||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Andrew Raab |
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Print Investors Name | Name of the Entity | |||
/s/ Andrew Raab |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Erik D. Ragatz |
Ragatz Revocable Trust Dated 1/9/06 |
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Print Investors Name | Name of the Entity | |||
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/s/ Erik D. Ragatz |
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Investors Signature | Signature | |||
Erik D. Ragatz |
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Print Name | ||||
TRUSTEE |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Robert L. Morse Jr. and Susan Cleary Morse Trust |
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Print Investors Name | Name of the Entity | |||
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/s/ Robert L. Morse Jr. |
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Investors Signature | Signature | |||
Robert L. Morse Jr. |
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Print Name | ||||
Trustee |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Scott Robertson |
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Print Investors Name | Name of the Entity | |||
/s/ Scott Robertson |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Robert E. Sarafan |
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/s/ Robert E. Sarafan |
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Investors Signature | Signature | |||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Thomas A. |
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/s/ Thomas A. |
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Investors Signature | Signature | |||
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Contact information for notices hereunder:
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Attn: | ||
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Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Marc Saiontz |
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Print Investors Name | Name of the Entity | |||
/s/ Marc Saiontz |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Steven Sanislo |
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Print Investors Name | Name of the Entity | |||
/s/ Steven Sanislo |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
John Schroer |
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Print Investors Name | Name of the Entity | |||
/s/ John Schroer |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
R. Randolph Scott |
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Print Investors Name | Name of the Entity | |||
/s/ R. Randolph Scott |
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Investors Signature | Signature | |||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Gregory A. Sissel |
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/s/ Gregory A. Sissel |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Smith Family Trust |
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/s/ Fred Smith |
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Investors Signature | Signature | |||
Fred Smith |
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Trustee |
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
David Stack |
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Print Investors Name | Name of the Entity | |||
/s/ David Stack |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Stanford-StartX LLC |
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Print Investors Name | Name of the Entity | |||
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/s/ Sabrina Liang |
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Investors Signature | Signature | |||
Sabrina Liang |
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Print Name | ||||
Director, School & Department Funds |
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Steep Rock Capital LTD |
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Print Investors Name | Name of the Entity | |||
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/s/ Paul Swigart |
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Investors Signature | Signature | |||
Paul Swigart |
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Director |
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written:
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Andrew Stephens |
The Stephens Family Trust dated June 13, 2006 |
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Print Investors Name | Name of the Entity | |||
/s/ Andrew Stephens |
/s/ Andrew Stephens |
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Investors Signature | Signature | |||
Andrew Stephens |
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Print Name | ||||
Trustee |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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The Cheng Family Trust |
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Print Investors Name | Name of the Entity | |||
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/s/ Wallace Cheng |
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Investors Signature | Signature | |||
Wallace Cheng and Gretchen Cheng, As Trustees of the Cheng Family Trust dated March 7, 2013 |
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Trustee |
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Title |
Contact information for notices hereunder:
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Attn: | ||
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Email: |
75
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Franklin H. Top, Jr. Revocable Inter Vivos Trust, dated 12/3/1991 |
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Print Investors Name | Name of the Entity | |||
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/s/ Franklin H. Top, Jr. |
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Investors Signature | Signature | |||
Franklin H. Top, Jr. |
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Trustee |
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Title |
Contact information for notices hereunder:
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Attn: | ||
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Email: |
76
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Lois E. Top Revocable Inter Vivos Trust, dated December 3, 1991 |
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Print Investors Name | Name of the Entity | |||
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/s/ Lois E. Top |
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Investors Signature | Signature | |||
Lois E. Top |
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Trustee |
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Title |
Contact information for notices hereunder:
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Attn: | ||
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Email: |
77
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Walt Ordemann |
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Print Investors Name | Name of the Entity | |||
/s/ Walt Ordemann |
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Investors Signature | Signature | |||
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Attn: | ||
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78
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Trevor Watt |
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Print Investors Name | Name of the Entity | |||
/s/ Trevor Watt |
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Investors Signature | Signature | |||
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Contact information for notices hereunder:
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Attn: | ||
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79
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Steven Winch |
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Print Investors Name | Name of the Entity | |||
/s/ Steven Winch |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Peter Van Vlasselaer |
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Print Investors Name | Name of the Entity | |||
/s/ Peter Van Vlasselaer |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Grant Yonehiro |
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Print Investors Name | Name of the Entity | |||
/s/ Grant Yonehiro |
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Investors Signature | Signature | |||
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Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Fan Zhang |
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Print Investors Name | Name of the Entity | |||
/s/ Fan Zhang |
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Investors Signature | Signature | |||
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||||
Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Tony Zheng |
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Print Investors Name | Name of the Entity | |||
/s/ Tony Zheng |
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Investors Signature | Signature | |||
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||||
Print Name | ||||
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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Masaya LLC |
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Print Investors Name | Name of the Entity | |||
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/s/ Carlos Gonzalez |
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Investors Signature | Signature | |||
Carlos Gonzalez |
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Print Name | ||||
Managing Member |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
|
Macro Biotech LLC |
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Print Investors Name | Name of the Entity | |||
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/s/ Carlos Gonzalez |
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Investors Signature | Signature | |||
Carlos Gonzalez |
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Print Name | ||||
Manager |
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Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
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SEM Biopharm, LLC |
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Print Investors Name | Name of the Entity | |||
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/s/ Rafael Urquia II |
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Investors Signature | Signature | |||
Rafael Urquia II |
||||
Print Name | ||||
Manager |
||||
Title |
Contact information for notices hereunder:
Address: | ||
Attn: | ||
Fax: | ||
Email: |
I N W ITNESS W HEREOF , the Company and the Investors have executed this I NVESTORS R IGHTS A GREEMENT as of the day and year first above written.
INVESTOR:
If you are an individual , please print your name and sign below: | If you are signing on behalf of an entity , print the name of the entity and sign below, indicating your title: | |||
Ron Glickman |
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Print Investors Name | Name of the Entity | |||
/s/ Ron Glickman |
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Investors Signature | Signature | |||
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Title |
Contact information for notices hereunder:
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Attn: | ||
Fax: | ||
Email: |
88
KODIAK SCIENCES INC.
AMENDMENT NO. 1 TO
INVESTORS RIGHTS AGREEMENT
This Amendment No. 1 (this Amendment ) to the Investors Rights Agreement, dated as of September 8, 2015 (the Rights Agreement ), by and among Kodiak Sciences Inc., a Delaware corporation (the Company ), and each of the stockholders of the Company that has delivered a signature page to the Rights Agreement (the Investors ), is made and entered into effective as of February 22, 2018 by and among the Company and the Investors. Capitalized terms used in this Amendment that are not otherwise defined herein shall have the respective meanings assigned to them in the Rights Agreement.
RECITALS
WHEREAS , pursuant to Section 5(c) of the Rights Agreement, any provision thereof (other than Sections 3 and 4) may be amended or waived with the written consent of the Company and the holders of a majority in interest of the shares of the Companys Common Stock and Preferred Stock (on an as-converted basis); and
WHEREAS , the undersigned desire to amend and grant certain waivers under the Rights Agreement.
NOW, THEREFORE , in consideration of the promises and mutual covenants, terms and conditions set forth herein, the undersigned hereby agree as follows:
AGREEMENT
1. Amendment of Section 1 . The definition of Conversion Securities in Section 1 of the Rights Agreement is hereby amended and restated in its entirety to read as follows:
Conversion Securities means (i) any Common Stock held by an Investor; (ii) any Common Stock issuable or issued upon conversion of the Preferred Stock now held or hereafter acquired by an Investor or as a dividend or other distribution with respect to, in exchange for, or in replacement of the Preferred Stock now held or hereafter acquired by an Investor; (iii) any Common Stock issuable or issued upon exercise of any warrants to purchase Common Stock (or exercise and conversion of warrants to purchase Preferred Stock) held by an Investor or as a distribution with respect to, in exchange for, or replacement of any warrants to purchase Common Stock (or Preferred Stock) held by an Investor; (iv) any Common Stock issuable upon conversion of any Notes (as defined in that certain Convertible Note Purchase Agreement, dated as of February 2, 2018, among the Company, the Purchasers from time to time party thereto and, solely with respect to Section 2.3 thereof, Baker Bros. Advisors L.P. (the Note Purchase Agreement )) pursuant to Sections 5.1 or 5.2 of the Note Purchase Agreement and any Other Financing Securities (or Common Stock issuable upon the conversion thereof) issuable pursuant to Section 5.4 of the Note Purchase Agreement; and (v) any Common Stock issued as a dividend or other distribution with respect to, in exchange for, or in replacement of any of the Common Stock that constitutes Conversion Securities pursuant to (i), (ii), (iii) and (iv) above.
2. Waiver of Section 2(n) . The undersigned hereby waive, on behalf of themselves and all Investors, the application of Section 2(n) of the Rights Agreement with respect to the entry by the Company into any registration rights agreement pursuant to Section 8.3 of the Note Purchase Agreement.
3. Additional Rights Agreement Parties . Notwithstanding anything to the contrary in the Rights Agreement, the undersigned hereby consent to the joinder of any holder of Notes to the Rights Agreement upon such holders delivery of a counterpart signature page thereto.
4. Effect . Except as expressly set forth herein, all other provisions of the Rights Agreement shall remain in full force and effect. This Amendment shall be deemed incorporated into and made a part of the Rights Agreement.
5. Governing Law . This Amendment shall be governed in all respects by the internal laws of the State of Delaware, without regard to conflicts of law provisions of the State of Delaware or any other state.
6. Entire Agreement . This Amendment, the Rights Agreement, and to the extent applicable, the Note Purchase Agreement, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. No party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein.
7. Severability . If any provision of this Amendment becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Amendment, and such court will replace such illegal, void or unenforceable provision of this Amendment with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Amendment shall remain enforceable in accordance with its terms.
8. Counterparts; Facsimile . This Amendment may be executed in any number of counterparts, each of which shall be an original, and all of which together shall constitute one instrument. Executed signatures transmitted via facsimile or PDF will be accepted and considered duly executed.
(signature page follows)
-2-
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.
COMPANY: | ||
KODIAK SCIENCES INC. | ||
By: | /s/ John Borgeson | |
John Borgeson | ||
Chief Financial Officer |
(Signature Page to Amendment No. 1 to Investors Rights Agreement)
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.
STOCKHOLDER:
667, L.P.
By: BAKER BROS. ADVISORS LP , management company and investment adviser to 667, L.P., pursuant to authority granted to it by Baker Biotech Capital, L.P., general partner to 667, L.P., and not as the general partner.
By: | /s/ Scott L. Lessing | |
Scott L. Lessing | ||
President |
BAKER BROTHERS LIFE SCIENCES, L.P.
By: BAKER BROS. ADVISORS LP , management company and investment adviser to Baker Brothers Life Sciences, L.P., pursuant to authority granted to it by Baker Brothers Life Sciences Capital, L.P., general partner to Baker Brothers Life Sciences, L.P., and not as the general partner.
By: | /s/ Scott L. Lessing | |
Scott L. Lessing | ||
President |
(Signature Page to Amendment No. 1 to Investors Rights Agreement)
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.
STOCKHOLDER: | ||
Victor Perlroth, M.D. | ||
Shareholder |
/s/ Victor Perlroth | ||
Signature |
Print name and title, if signing on behalf of an entity |
(Signature Page to Amendment No. 1 to Investors Rights Agreement)
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.
STOCKHOLDER: |
Sigma Emerging Markets Ltd. |
/s/ Rafael Urquia |
Signature |
|
Rafael Urquia II, Secretary |
(Signature Page to Amendment No. 1 to Investors Rights Agreement)
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.
STOCKHOLDER: |
Dustin A. Moskovitz Trust DTD 12/27/05 |
/s/ Jed Clark |
Signature |
Jed Clark; Authorized Signatory |
Print name and title, if signing on behalf of an entity |
(Signature Page to Amendment No. 1 to Investors Rights Agreement)
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.
STOCKHOLDER: |
Macro Continental, Inc. |
/s/ Carlos A. Gonzalez May |
Signature |
Carlos A. Gonzalez May; Director |
Print name and title, if signing on behalf of an entity |
(Signature Page to Amendment No. 1 to Investors Rights Agreement)
Exhibit 5.1
|
650 Page Mill Road Palo Alto, CA 94304-1050
PHONE 650.493.9300 FAX 650.493.6811 www.wsgr.com |
September 24, 2018
Kodiak Sciences Inc.
2631 Hanover Street
Palo Alto, California 94304
Re: |
Registration Statement on Form S-1 |
Ladies and Gentlemen:
This opinion is furnished to you in connection with the Registration Statement on Form S-1 (Registration No. 333-227237), as amended (the Registration Statement ), filed by Kodiak Sciences Inc. (the Company ) with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of 9,000,000 shares (including 1,350,000 shares issuable upon exercise of an option to purchase additional shares granted to the underwriters) of the Companys common stock, par value $0.0001 per share (the Shares ), to be issued and sold by the Company. We understand that the Shares are to be sold to the underwriters for resale to the public as described in the Registration Statement and pursuant to an underwriting agreement, substantially in the form filed as an exhibit to the Registration Statement, to be entered into by and among the Company and the underwriters (the Underwriting Agreement ).
We are acting as counsel for the Company in connection with the sale of the Shares by the Company. In such capacity, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary for the purposes of rendering this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity with the originals of all documents submitted to us as copies, the authenticity of the originals of such documents and the legal competence of all signatories to such documents.
We express no opinion herein as to the laws of any state or jurisdiction other than the General Corporation Law of the State of Delaware (including the statutory provisions and all applicable judicial decisions interpreting those laws) and the federal laws of the United States of America.
On the basis of the foregoing, we are of the opinion, that the Shares to be issued and sold by the Company have been duly authorized and, when such Shares are issued and paid for in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable.
AUSTIN BEIJING BOSTON BRUSSELS HONG KONG LONDON LOS ANGELES NEW YORK PALO ALTO
SAN DIEGO SAN FRANCISCO SEATTLE SHANGHAI WASHINGTON , DC WILMINGTON , DE
September 24, 2018
Page 2
We consent to the use of this opinion as an exhibit to the Registration Statement, and we consent to the reference of our name under the caption Legal Matters in the prospectus forming part of the Registration Statement.
Very truly yours, |
/s/ Wilson Sonsini Goodrich & Rosati |
WILSON SONSINI GOODRICH & ROSATI Professional Corporation |
Exhibit 10.1
KODIAK SCIENCES INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this Agreement ) is dated as of ____________, and is between Kodiak Sciences Inc., a Delaware corporation (the Company ), and ____________ ( Indemnitee ).
RECITALS
A. Indemnitees service to the Company substantially benefits the Company.
B. Individuals are reluctant to serve as directors or officers of corporations or in certain other capacities unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service.
C. Indemnitee does not regard the protection currently provided by applicable law, the Companys governing documents and any insurance as adequate under the present circumstances, and Indemnitee may not be willing to serve as a director or officer without additional protection.
D. In order to induce Indemnitee to continue to provide services to the Company, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, Indemnitee as permitted by applicable law.
E. This Agreement is a supplement to and in furtherance of the indemnification provided in the Companys certificate of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or abrogate any rights of Indemnitee thereunder.
The parties therefore agree as follows:
1. Definitions .
(a) A Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party . Any Person (as defined below) becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Companys then outstanding securities;
(ii) Change in Board Composition . During any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Companys board of directors, and any new directors (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 1(a)(i), 1(a)(iii) or 1(a)(iv)) whose election by the board of directors
or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Companys board of directors;
(iii) Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
(iv) Liquidation . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets; and
(v) Other Events . Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement, except the completion of the Companys initial public offering shall not be considered a Change in Control.
For purposes of this Section 1(a), the following terms shall have the following meanings:
(1) Person shall have the meaning as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended; provided, however , that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(2) Beneficial Owner shall have the meaning given to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended; provided, however , that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of (i) the stockholders of the Company approving a merger of the Company with another entity or (ii) the Companys board of directors approving a sale of securities by the Company to such Person.
(b) Corporate Status describes the status of a person who is or was a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise.
(c) DGCL means the General Corporation Law of the State of Delaware.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
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(e) Enterprise means the Company and any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary.
(f) Expenses include all reasonable and actually incurred attorneys fees, retainers, court costs, transcript costs, fees and costs of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond or other appeal bond or their equivalent, and (ii) for purposes of Section 12(d), Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitees rights under this Agreement or under any directors and officers liability insurance policies maintained by the Company. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g) Independent Counsel means a law firm, or a partner or member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than as Independent Counsel with respect to matters concerning Indemnitee under this Agreement, or other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
(h) Proceeding means any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, including any appeal therefrom and including without limitation any such Proceeding pending as of the date of this Agreement, in which Indemnitee was, is or will be involved as a party, a potential party, a non-party witness or otherwise by reason of (i) the fact that Indemnitee is or was a director or officer of the Company, (ii) any action taken by Indemnitee or any action or inaction on Indemnitees part while acting as a director or officer of the Company, or (iii) the fact that he or she is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement.
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(i) Reference to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to any employee benefit plan; references to serving at the request of the Company shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Company as referred to in this Agreement.
2. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 2 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
3. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged by a court of competent jurisdiction to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court of Chancery or such other court shall deem proper.
4. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . To the extent that Indemnitee is a party to or a participant in and is successful (on the merits or otherwise) in defense of any Proceeding or any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith. For purposes of this section, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
5. Indemnification for Expenses of a Witness . To the extent that Indemnitee is, by reason of his or her Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified to the extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith.
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6. Additional Indemnification .
(a) Notwithstanding any limitation in Sections 2, 3 or 4, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the Proceeding or any claim, issue or matter therein.
(b) For purposes of Section 6(a), the meaning of the phrase to the fullest extent permitted by applicable law shall include, but not be limited to:
(i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and
(ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
7. Exclusions . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any Proceeding):
(a) for which payment has actually been made to or on behalf of Indemnitee under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(b) for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(c) for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(d) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Companys board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (iii) otherwise authorized in Section 12 or (iv) otherwise required by applicable law; or
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(e) if prohibited by applicable law.
8. Advances of Expenses . The Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding prior to its final disposition, and such advancement shall be made as soon as reasonably practicable, but in any event no later than 90 days, after the receipt by the Company of a written statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice). Advances shall be unsecured and interest free and made without regard to Indemnitees ability to repay such advances. Indemnitee hereby undertakes to repay any advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and no other form of undertaking shall be required other than the execution of this Agreement. This Section 8 shall not apply to the extent advancement is prohibited by law and shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is not permitted under this Agreement, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 7(b) or 7(c) prior to a determination that Indemnitee is not entitled to be indemnified by the Company.
9. Procedures for Notification and Defense of Claim .
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of notice thereof. The written notification to the Company shall include, in reasonable detail, a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.
(b) If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the Company has directors and officers liability insurance in effect that may be applicable to the Proceeding, the Company shall give prompt notice of the commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all commercially-reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
(c) In the event the Company may be obligated to make any indemnity in connection with a Proceeding, the Company shall be entitled to assume the defense of such Proceeding with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, conditioned or delayed, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the
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Company, the Company will not be liable to Indemnitee for any fees or expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. Notwithstanding the Companys assumption of the defense of any such Proceeding, the Company shall be obligated to pay the fees and expenses of Indemnitees separate counsel to the extent (i) the employment of separate counsel by Indemnitee is authorized by the Company, (ii) counsel for the Company or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense such that Indemnitee needs to be separately represented, (iii) the Company is not financially or legally able to perform its indemnification obligations, or (iv) the Company shall not have retained, or shall not continue to retain, counsel to defend such Proceeding. Regardless of any provision in this Agreement, Indemnitee shall have the right to employ counsel in any Proceeding at Indemnitees personal expense. The Company shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(d) Indemnitee shall give the Company such information and cooperation in connection with the Proceeding as may be reasonably appropriate.
(e) The Company shall not be liable to indemnify Indemnitee for any settlement of any Proceeding (or any part thereof) without the Companys prior written consent, which shall not be unreasonably withheld, conditioned or delayed.
(f) The Company shall not settle any Proceeding (or any part thereof) in a manner that imposes any penalty or liability on Indemnitee without Indemnitees prior written consent, which shall not be unreasonably withheld, conditioned or delayed.
10. Procedures upon Application for Indemnification .
(a) To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. The Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in providing the request will not relieve the Company from its obligations under this Agreement, except to the extent such failure is prejudicial.
(b) Upon written request by Indemnitee for indemnification pursuant to Section 10(a), a determination with respect to Indemnitees entitlement thereto shall be made in the specific case (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Companys board of directors, a copy of which shall be delivered to Indemnitee or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Companys board of directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Companys board of directors, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Companys board of directors, a copy of which shall be delivered to Indemnitee or (D) if so directed
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by the Companys board of directors, by the stockholders of the Company. If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty days after such determination. Indemnitee shall cooperate with the person, persons or entity making the determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company, to the extent permitted by applicable law.
(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(b), the Independent Counsel shall be selected as provided in this Section 10(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Companys board of directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Companys board of directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof and (ii) the final disposition of the Proceeding, the parties have not agreed upon an Independent Counsel, either the Company or Indemnitee may petition the Delaware Court of Chancery for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(d) The Company agrees to pay the reasonable fees and expenses of any Independent Counsel.
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11. Presumptions and Effect of Certain Proceedings .
(a) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption by clear and convincing evidence.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith to the extent Indemnitee relied in good faith on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise or its board of directors or counsel selected by any committee of the board of directors or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant, an appraiser, investment banker or other expert selected with reasonable care by the Enterprise or its board of directors or any committee of the board of directors. The provisions of this Section 11(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met any applicable standard of conduct.
(d) Neither the knowledge, actions nor failure to act of any other director, officer, agent or employee of the Enterprise shall be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
12. Remedies of Indemnitee .
(a) Subject to Section 12(e), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 or 12(d) of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10 of this Agreement within 90 days after the later of the receipt by the Company of the request for indemnification or the final disposition of the Proceeding, (iv) payment of indemnification pursuant to this Agreement is not made (A) within thirty days after a determination has been made that Indemnitee is entitled to indemnification or (B) with respect to indemnification pursuant to Sections 4, 5 and 12(d) of this Agreement, within thirty days after receipt by the Company of a written request therefor, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by the Delaware Court of Chancery of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration with respect to his or
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her entitlement to such indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a). The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration in accordance with this Agreement.
(b) Neither (i) the failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders that Indemnitee has not met the applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, by clear and convincing evidence.
(c) To the fullest extent not prohibited by law, the Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. If a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statements not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) To the extent not prohibited by law, the Company shall indemnify Indemnitee against all Expenses that are incurred by Indemnitee in connection with any action for indemnification or advancement of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company to the extent Indemnitee is successful in such action, and, if requested by Indemnitee, shall (as soon as reasonably practicable, but in any event no later than 90 days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee, subject to the provisions of Section 8.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.
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13. Contribution . To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and transactions giving rise to such Proceeding; and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such events and transactions.
14. Non-exclusivity . The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Companys certificate of incorporation or bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Companys certificate of incorporation and bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change, subject to the restrictions expressly set forth herein or therein. Except as expressly set forth herein, no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Except as expressly set forth herein, the assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
15. [Primary Responsibility . The Company acknowledges that Indemnitee has certain rights to indemnification and advancement of expenses provided by [ insert name of fund ] [and certain affiliates thereof] (collectively, the Secondary Indemnitor[s] ). The Company agrees that, as between the Company and the Secondary Indemnitor[s], the Company is primarily responsible for amounts required to be indemnified or advanced under the Companys certificate of incorporation or bylaws or this Agreement and any obligation of the Secondary Indemnitor[s] to provide indemnification or advancement for the same amounts is secondary to those Company obligations. To the extent not in contravention of any insurance policy or policies providing liability or other insurance for the Company or any director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, the Company waives any right of contribution or subrogation against the Secondary Indemnitor[s] with respect to the liabilities for which the Company is primarily responsible under this Section 15. In the event of any payment by the Secondary Indemnitor[s] of amounts otherwise required to be indemnified or advanced by the Company under the Companys certificate of incorporation or bylaws or this Agreement, the Secondary Indemnitor[s] shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee for indemnification or advancement of expenses under the Companys certificate of incorporation or bylaws or this Agreement or, to the extent such subrogation is unavailable and contribution is found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid; provided, however , that the foregoing sentence will be deemed void if and to the extent that it would violate any applicable insurance policy. The Secondary Indemnitor[s] [are][is an] express third-party [beneficiaries][beneficiary] of the terms of this Section 15.]
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16. No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment for such amounts under any insurance policy, contract, agreement or otherwise.
17. Insurance . To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or fiduciaries of the Company or any other Enterprise, Indemnitee shall be covered by such policy or policies to the same extent as the most favorably-insured persons under such policy or policies in a comparable position.
18. Subrogation . In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
19. Services to the Company . Indemnitee agrees to serve as a director or officer of the Company or, at the request of the Company, as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of another Enterprise, for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation or is removed from such position. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that any employment with the Company (or any of its subsidiaries or any Enterprise) is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, with or without notice, except as may be otherwise expressly provided in any executed, written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), any existing formal severance policies adopted by the Companys board of directors or, with respect to service as a director or officer of the Company, the Companys certificate of incorporation or bylaws or the DGCL. No such document shall be subject to any oral modification thereof.
20. Duration . This Agreement shall continue in effect until the later of (a) ten years after the date that Indemnitee shall have ceased to serve as a director or an officer of the Company or as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as applicable, (b) for as long as Indemnitee may be subject to any Proceeding, even after Indemnitee has ceased to serve as a director or officer of the Company or as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as applicable.
21. Successors . This Agreement shall be binding upon the Company and its 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 the Company, and shall inure to the benefit of Indemnitee and Indemnitees heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
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22. Severability . Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Companys inability, pursuant to court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
23. Enforcement . The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.
24. Entire Agreement . This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however , that this Agreement is a supplement to and in furtherance of the Companys certificate of incorporation and bylaws and applicable law.
25. Modification and Waiver . No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by the parties hereto. No amendment, alteration or repeal of this Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. No waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision of this Agreement nor shall any waiver constitute a continuing waiver.
26. Notices . All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by electronic mail or otherwise delivered by hand, messenger or courier service addressed:
(a) if to Indemnitee, to Indemnitees address, or electronic mail address as shown on the signature page of this Agreement or in the Companys records, as may be updated in accordance with the provisions hereof; or
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(b) if to the Company, to the attention of the Chief Executive Officer or Chief Financial Officer of the Company at 2361 Hanover Street, Palo Alto, California 94304, or at such other current address as the Company shall have furnished to Indemnitee, with copies (which shall not constitute notice) to Jeffrey Saper and Michael Nordtvedt, Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California 94304.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), or (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipients next business day.
27. Applicable Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court of Chancery, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court of Chancery for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, the Corporation Service Company, Wilmington, Delaware as its agent in the State of Delaware as such partys agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court of Chancery, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court of Chancery has been brought in an improper or inconvenient forum.
28. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
29. Captions . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
(signature page follows)
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The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.
KODIAK SCIENCES INC. |
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(Signature) |
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(Print name) |
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(Title) |
[INSERT INDEMNITEE NAME] |
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(Signature) |
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(Print name) |
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(Street address) |
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(City, State and ZIP) |
Exhibit 10.6
KODIAK SCIENCES INC.
2018 EQUITY INCENTIVE PLAN
(Adopted on August 14, 2018 and effective as of the business day prior to the Companys initial public offering)
1. Purposes of the Plan . The purposes of this Plan are:
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to attract and retain the best available personnel for positions of substantial responsibility, |
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to provide additional incentive to Employees, Directors and Consultants, and |
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to promote the success of the Companys business. |
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.
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 legal and regulatory requirements relating to the administration of equity-based awards and the related issuance of Shares thereunder, including but not limited to U.S. federal and 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 non-U.S. 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 or Performance Shares.
(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 fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, (A) the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control, and (B) if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Companys voting stock immediately prior to the change in ownership, the direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event will not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership will include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; 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 subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii) A change in the ownership of a substantial portion of the Companys 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 fifty percent (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 Companys assets: (A) a transfer to an entity that is controlled by the Companys 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 Companys stock, (2) an entity, fifty percent (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, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (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 definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
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Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Section 409A.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Companys incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction.
(g) Code means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(h) Committee means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or a duly authorized committee of the Board, in accordance with Section 4 hereof.
(i) Common Stock means the common stock of the Company.
(j) Company means Kodiak Sciences Inc., a Delaware corporation, or any successor thereto.
(k) Consultant means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Companys securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided, further, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
(l) Director means a member of the Board.
(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 directors 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.
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(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 higher or 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 increased or 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 Common Stock determined as follows:
(i) For purposes of any Awards granted on the Registration Date, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Companys Common Stock.
(ii) For purposes of any Awards granted on any other date, the Fair Market Value will be the closing sales price for Common Stock as quoted on any established stock exchange or national market system (including without limitation the New York Stock Exchange, NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market) on which the Common Stock is listed on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable. If the determination date for the Fair Market Value occurs on a non-trading day (i.e., a weekend or holiday), the Fair Market Value will be such price on the immediately preceding trading day, unless otherwise determined by the Administrator. In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
The determination of fair market value for purposes of tax withholding may be made in the Administrators discretion subject to Applicable Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
(r) Fiscal Year means the fiscal year of the Company.
(s) Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(t) Inside Director means a Director who is an Employee.
(u) Nonstatutory Stock Option means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(v) 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.
(w) Option means a stock option granted pursuant to the Plan.
(x) Outside Director means a Director who is not an Employee.
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(y) Parent means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(z) Participant means the holder of an outstanding Award.
(aa) 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.
(bb) 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.
(cc) 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.
(dd) Plan means this 2018 Equity Incentive Plan.
(ee) Registration Date means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(b) of the Exchange Act, with respect to any class of the Companys securities.
(ff) Restricted Stock means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the early exercise of an Option.
(gg) Restricted Stock Unit means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(hh) 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.
(ii) Section 16(b) means Section 16(b) of the Exchange Act.
(jj) Section 409A means Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
(kk) Securities Act means the Securities Act of 1933, as amended.
(ll) Service Provider means an Employee, Director or Consultant.
(mm) Share means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.
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(nn) Stock Appreciation Right means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a Stock Appreciation Right.
(oo) 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 14 of the Plan and the automatic increase set forth in Section 3(b) of the Plan, upon effectiveness of the Plan as provided in Section 18, the initial maximum aggregate number of Shares that may be issued under the Plan is 1,500,000 Shares (the Initial Share Reserve ). Subject to the provisions of Section 14 of the Plan and the automatic increase set forth in Section 3(b) of the Plan, upon the filing of the Companys amended and restated certificate of incorporation with the Secretary of State of the State of Delaware in connection with the closing of the Companys initial public offering, the maximum aggregate number of Shares that may be issued under the Plan will be increased to a total of 4,300,000 Shares, which figure includes the Initial Share Reserve, plus (i) any Shares that, as of the Registration Date, have been reserved but not issued pursuant to any awards granted under the Companys 2015 Share Incentive Plan (the 2015 Plan ) and are not subject to any awards granted thereunder and (ii) any Shares subject to stock options, restricted stock units, or similar awards granted under the 2015 Plan or the Companys 2009 Option and Profits Interest Plan (together, the Existing Plans ) that, on or after the Registration Date, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of an exercise price or for tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of Shares to be added to the Plan pursuant to clauses (i) and (ii) equal to 3,800,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.
(b) Automatic Share Reserve Increase . Subject to the provisions of Section 14 of the Plan, the number of Shares available for issuance under the Plan will be increased on the first day of each Fiscal Year beginning with the 2019 Fiscal Year, in an amount equal to the least of (i) 4,300,000 Shares, (ii) 4% of the outstanding Shares on the last day of the immediately preceding Fiscal Year or (iii) such number of Shares determined by the Board.
(c) Lapsed Awards . If an Award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights the forfeited or repurchased Shares), which were subject
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thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued (i.e., the net Shares issued) pursuant to a Stock Appreciation Right will cease to be available under the Plan; all remaining Shares under Stock Appreciation Rights will remain available for future grant or sale under the Plan (unless the Plan has terminated). 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 Shares issued pursuant to Awards 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 exercise price of an Award or to satisfy the tax withholding obligations related to 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 and, subject to adjustment as provided in Section 14, 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 and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Sections 3(b) and 3(c).
(d) 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) 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.
(iii) 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:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
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(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi) to institute and determine the terms and conditions of an Exchange Program;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(viii) 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 non-U.S. laws or for qualifying for favorable tax treatment under applicable non-U.S. laws;
(ix) to modify or amend each Award (subject to Section 19 of the Plan), including but not limited to the discretionary authority to extend the post-termination exercisability period of Awards and to extend the maximum term of an Option (subject to Section 6(b) of the Plan regarding Incentive Stock Options);
(x) to allow Participants to satisfy tax withholding obligations in such manner as prescribed in Section 15 of the Plan;
(xi) 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;
(xii) 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; and
(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.
(c) Effect of Administrators Decision . The Administrators decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5. Eligibility . Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
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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 one hundred thousand dollars ($100,000), 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.
(b) Term of Option . The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. 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 ten percent (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, subject to the following:
(1) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (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 one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than one hundred percent (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.
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(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 of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration received by the Company under a broker-assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise; (7) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (8) any combination of the foregoing methods of payment.
(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) a notice of exercise (in such form as the Administrator may specify 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 applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii) Termination of Relationship as a Service Provider . If a Participant ceases to be a Service Provider, other than upon the Participants termination as the result of the Participants 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
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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 Participants 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 Participants 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 Participants 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 Participants 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 Participants designated beneficiary, provided such beneficiary has been designated prior to Participants 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 Participants estate or by the person(s) to whom the Option is transferred pursuant to the Participants 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 Participants 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) Tolling Expiration . A Participants Award Agreement may also provide that:
(1) if the exercise of the Option following the termination of Participants status as a Service Provider (other than upon the Participants 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 tenth (10 th ) day after the last date on which such exercise would result in liability under Section 16(b); or
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(2) if the exercise of the Option following the termination of the Participants status as a Service Provider (other than upon the Participants death or Disability) 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 thirty (30)-day period after the termination of the Participants status as a Service Provider during which the exercise of the Option would not be in violation of such registration requirements.
7. 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, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.
(c) Transferability . Except as provided in this Section 7 or the Award Agreement, 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 7, 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 or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
(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 the Administrator provides otherwise. 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.
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8. Restricted Stock Units .
(a) Grant . Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(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. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the Administrator in its discretion.
(c) Earning Restricted Stock Units . Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment . Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may only settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e) Cancellation . On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
9. 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 Service Provider.
(c) Exercise Price and Other Terms . The per share exercise price for the Shares to be issued pursuant to exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, 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.
(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.
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(e) Expiration of Stock Appreciation Rights . A Stock Appreciation Right granted under the Plan will expire ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement, as determined by the Administrator, in its sole discretion. Notwithstanding the foregoing, the rules of Section 6(d) relating to exercise 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.
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 and Performance 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 (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives or other vesting provisions must be met will be called the Performance Period. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
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(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.
(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. Outside Director Limitations . No Outside Director may be paid, issued or granted, in any Fiscal Year, cash compensation and equity awards (including any Awards issued under this Plan) with an aggregate value greater than $500,000 (increased to $1,000,000 in connection with his or her initial service as an Outside Director), with the value of each equity award based on its grant date fair value (determined in accordance with U.S. generally accepted accounting principles). Any cash compensation paid or Awards granted to an individual for his or her services as an Employee, or for his or her services as a Consultant (other than as an Outside Director), will not count for purposes of the limitation under this Section 11.
12. Leaves of Absence/Transfer Between Locations . Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant 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 following the first (1st) day 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.
13. 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.
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14. 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 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.
(c) Change in Control . In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines subject to the restriction in the following paragraph, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. The Administrator will not be required to treat all Awards or Participants 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 and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, unless specifically provided otherwise under the applicable Award Agreement, a Company policy applicable to the Participant, or other written agreement between the Participant and the Company, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted 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 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) received in the 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 or its Parent, 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 Restricted Stock Unit, Performance Unit or Performance Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.
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Notwithstanding anything in this Section 14(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 Participants consent; provided, however, a modification to such performance goals only to reflect the successor corporations post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
(d) Outside Director Awards . With respect to Awards granted to an Outside Director, in the event of a Change in Control, and unless otherwise agreed, then the Outside Director will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares underlying such Award, including those Shares which would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met.
15. Tax .
(a) Withholding Requirements . Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholding obligations are due, 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 U.S. federal, state, or local taxes, non-U.S. taxes, or other taxes (including the Participants FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(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 not in excess of the maximum statutory amount required to be withheld, or (iii) delivering to the Company already-owned Shares having a fair market value not in excess of the maximum statutory amount required to be withheld. 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.
(c) Compliance With Section 409A . Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan is intended to meet the requirements of Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A. In no event will the Company (or any Parent or Subsidiary of the Company, as applicable) reimburse a Participant for any taxes imposed or other costs incurred as a result of Section 409A.
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16. No Effect on Employment or Service . Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participants relationship as a Service Provider, nor will they interfere in any way with the Participants right or the right of the Company (or any Parent or Subsidiary of the Company) to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
17. 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.
18. Term of Plan . Subject to Section 23 of the Plan, the Plan will become effective upon the later to occur of (i) its adoption by the Board or (ii) the business day immediately prior to the Registration Date. It will continue in effect for a term of ten (10) years from the date adopted by the Board, unless terminated earlier under Section 19 of the Plan.
19. 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 materially 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 Administrators ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
20. Conditions Upon Issuance of Shares .
(a) Legal Compliance . Shares will not be issued pursuant to 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.
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21. Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any U.S. federal or state law, any non-U.S. law, or the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Companys counsel to be necessary or advisable for the 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, registration, qualification or rule compliance will not have been obtained.
22. Forfeiture Events .
(a) All Awards granted under the Plan will be subject to recoupment under any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Companys securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other Applicable Laws. In addition, the Administrator may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Administrator determines necessary or appropriate, including but not limited to a reacquisition right regarding previously acquired Shares or other cash or property. Unless this Section 22 is specifically mentioned and waived in an Award Agreement or other document, no recovery of compensation under a clawback policy or otherwise will be an event that triggers or contributes to any right of a Participant to resign for good reason or constructive termination (or similar term) under any agreement with the Company or any Subsidiary.
(b) The Administrator may specify in an Award Agreement that the Participants rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but will not be limited to, termination of such Participants status as a Service Provider for cause or any specified action or inaction by a Participant, whether before or after the date Participant is no longer a Service Provider, that would constitute cause for termination of such Participants status as a Service Provider.
(c) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under securities laws, any Participant who (1) knowingly or through gross negligence engaged in the misconduct or who knowingly or through gross negligence failed to prevent the misconduct or (2) is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, must reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement.
23. 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 by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
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Exhibit 10.7
KODIAK SCIENCES INC.
2018 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Kodiak Sciences Inc. 2018 Equity Incentive Plan (the Plan) will have the same defined meanings in this Stock Option Agreement, which includes the Notice of Stock Option Grant (the Notice of Grant), the Terms and Conditions of Stock Option Grant attached hereto as Exhibit A , and all appendices and exhibits attached thereto (all together, the Option Agreement).
NOTICE OF STOCK OPTION GRANT
Participant:
Address:
The undersigned Participant has been granted an Option to purchase Common Stock of Kodiak Sciences Inc. (the Company), subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Grant Number: |
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Date of Grant: |
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Vesting Commencement Date: |
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Number of Shares Granted: |
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Exercise Price per Share: |
$ | |||
Total Exercise Price: |
$ | |||
Type of Option: |
Incentive Stock Option | |||
Nonstatutory Stock Option | ||||
Term/Expiration Date: |
Vesting Schedule :
Subject to accelerated vesting as set forth below or in the Plan, this Option will be exercisable, in whole or in part, in accordance with the following schedule:
[Twenty-five percent (25%) of the Shares subject to the Option shall vest on the one (1) year anniversary of the Vesting Commencement Date, and one forty-eighth (1/48 th ) of the Shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date (and if there is no corresponding day, on the last day of the month), subject to Participant continuing to be a Service Provider through each such date.]
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The vesting schedule in the paragraph above notwithstanding, the Shares subject to the Option shall be subject to the following special vesting acceleration provisions (referred to herein as the Accelerated Vesting Benefits), subject to Participants execution and delivery of a release and waiver of claims agreement drafted by and satisfactory to counsel for the Company, and such release and waiver of claims agreement must be executed and become effective within sixty (60) days following the employment termination date (Termination Date) or the second (2 nd ) anniversary of the Change in Control, as applicable (the date such release and waiver of claims agreement becomes effective, the Release Effective Date):
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If, at any time before the consummation of any Change in Control, Participants employment is terminated by the Company without Cause (as defined below or in a Separate Agreement, as applicable) and other than for death or Disability, or by Participant with Good Reason (as defined below or in a Separate Agreement, as applicable), then that number of Shares subject to the Option as would have vested in the twelve (12)-month period following the Termination Date, had Participant continued to be employed by the Company for such period, shall vest, effective as of the Release Effective Date. |
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If (i) on the date twenty-four (24) months immediately following the consummation of any Change in Control, Participant is providing services to the acquiring company as either an employee or a consultant or (ii) within twenty-four (24) months following the consummation of any Change in Control, Participants employment is terminated by the Company without Cause and other than for death or Disability, or by Participant for Good Reason (as defined below), then in either the case of (i) or (ii), one hundred percent (100%) of the Shares subject to the Option that remain unvested shall vest and become exercisable in full, effective as of the Release Effective Date. |
Unless any agreement between Participant and the Company (a Separate Agreement) provides a definition that is more favorable to Participant, Cause shall mean: (i) Participants conviction of, including pleading guilty or nolo contendere to, any felony or any crime involving dishonesty; (ii) Participants participation in any fraud or act of dishonesty against the Company that has caused or is reasonably expected to result in injury to the Company; (iii) a material violation by Participant of any of the Companys written policies or other serious misconduct, in each case that results in or is reasonably likely to result in material harm to Company; (iv) Participants willful and continued failure substantially to perform any of Participants job duties (other than as a result of total or partial Disability) that is not cured within thirty (30) days following written notice of Cause from the Company; (v) conduct by Participant which, in the good faith and reasonable determination of the Companys Board of Directors, demonstrates gross unfitness to serve; or (vi) Participants material breach of any agreement with the Company (or its subsidiaries or successors).
Unless any Separate Agreement provides a definition that is more favorable to Participant, Good Reason shall mean the occurrence of any one or more of the following events without the prior written consent of Participant: (i) a material reduction in base salary or targeted incentive bonus opportunity, or benefits; (ii) a material reduction in Participants title, duties, or responsibilities without Cause provided that a reassignment following a Change in Control to a position that is substantially similar to the position held prior to the Change in Control shall not
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constitute a material reduction in job responsibilities or duties; (iii) a relocation of Participants primary work location that increases Participants one-way commute by more than fifty (50) miles; (iv) failure of the successor company to assume obligations contained in the Option or any other equity compensation agreement in place between Participant and the Company at the time of the Change in Control; or (v) the Companys material breach of any terms of the Option or employment agreement with Participant; provided, however, that no such event or condition shall constitute Good Reason unless (x) Participant gives the Company a written notice of termination for Good Reason not more than ninety (90) days after the initial existence of the condition, (y) the grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice, and (z) the Termination Date occurs within ninety (90) days following the Companys receipt of such notice.
Notwithstanding anything herein to the contrary, in the event a Separate Agreement provides for vesting acceleration benefits that are more favorable than the Accelerated Vesting Benefits, the terms of the Separate Agreement shall apply in lieu of the Accelerated Vesting Benefits.
Termination Period :
Subject to the following paragraph, this Option will be exercisable for the following period after Participant ceases to be a Service Provider: (i) in the event of the death of Participant during the period of continuous Service Provider status since the date of grant of the Option, or within three (3) months following termination of Participants continuous Service Provider status, the Option may be exercised by Participants estate, or by a person who acquired the right to exercise the Option by bequest or inheritance, at any time within nine (9) months following the date of death or, if earlier, the date Participants continuous Service Provider status terminated, (ii) in the event of termination of Parcipants continuous Service Provider status as a result of Participants Disability, Participant may exercise the Option at any time within six (6) months following such termination, or (iii) in the event of termination of Parcipants continuous Service Provider status for any reason other than Cause, death, or Disability, Participant may exercise the Option at any time within three (3) months following such termination. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 14 of the Plan.
In the event of termination of Participants continuous Service Provider status for Cause, the Option (including, in the discretion of the Administrator, any vested portion thereof) shall immediately terminate in its entirety upon first notification to Participant of termination of Participants continuous Service Provider status for Cause. If Participants continuous Service Provider status is suspended pending an investigation of whether Participants continuous Service Provider status will be terminated for Cause, all of Participants rights under the Option, including the right to exercise the Option, shall be suspended during the investigation period.
[Signature page follows.]
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By Participants signature and the signature of the representative of the Company below, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, any applicable Separate Agreement, and this Option Agreement, including the Terms and Conditions of Stock Option Grant, attached hereto as Exhibit A , all of which are made a part of this document. Participant acknowledges receipt of a copy of the Plan. Participant 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 this Option Agreement. Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Option Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
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EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1. Grant of Option . The Company hereby grants to the individual (the Participant) named in the Notice of Stock Option Grant of this Option Agreement (the Notice of Grant) an option (the Option) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the Exercise Price), subject to all of the terms and conditions in this Option Agreement and the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, 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 will prevail.
(a) For U.S. taxpayers, the Option will be designated as either an Incentive Stock Option (ISO) or a Nonstatutory Stock Option (NSO). If designated in the Notice of Grant as an ISO, this Option is intended to qualify as an ISO under Section 422 of the Internal Revenue Code of 1986, as amended (the Code). However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it will be treated as an NSO. Further, if for any reason this Option (or portion thereof) will not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a NSO granted under the Plan. In no event will the Administrator, the Company or any Parent or Subsidiary or any of their respective employees or directors have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
(b) For non-U.S. taxpayers, the Option will be designated as an NSO.
2. Vesting Schedule . Except as provided in Section 3, the Option awarded by this Option Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Option Agreement, unless Participant will have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.
3. Administrator Discretion . The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Option at any time, subject to the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by the Administrator.
4. Exercise of Option .
(a) Right to Exercise . This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.
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(b) Method of Exercise . This Option is exercisable by delivery of an exercise notice (the Exercise Notice) in the form attached as Exhibit A or in a manner and pursuant to such procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the Exercised Shares), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together and of any Tax Obligations (as defined in Section 6(a)). This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.
5. Method of Payment . Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) if Participant is a U.S. employee, surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares and that are owned free and clear of any liens, claims, encumbrances, or security interests, provided that accepting such Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company.
6. Tax Obligations .
(a) Participant acknowledges that, regardless of any action taken by the Company or, if different, Participants employer (the Employer) or Parent or Subsidiary to which Participant is providing services (together, the Company, Employer and/or Parent or Subsidiary to which the Participant is providing services, the Service Recipient), the ultimate liability for any tax and/or social insurance liability obligations and requirements in connection with the Option, including, without limitation, (i) all federal, state, and local taxes (including the Participants Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Service Recipient or other payment of tax-related items related to Participants participation in the Plan and legally applicable to Participant, (ii) the Participants and, to the extent required by the Company (or Service Recipient), the Companys (or Service Recipients) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of the Option or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to the Option (or exercise thereof or issuance of Shares thereunder) (collectively, the Tax Obligations), is and remains Participants responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the
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Option, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate Participants liability for Tax Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Service Recipient (or former employer, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b) Tax Withholding . When the Option is exercised, Participant generally will recognize immediate U.S. taxable income if Participant is a U.S. taxpayer. If Participant is a non-U.S. taxpayer, Participant will be subject to applicable taxes in his or her jurisdiction. Pursuant to such procedures as the Administrator may specify from time to time, the Company and/or Service Recipient shall withhold the amount required to be withheld for the payment of Tax Obligations. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such Tax Obligations, in whole or in part (without limitation), if permissible by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participants wages or other cash compensation paid to Participant by the Company and/or the Service Recipient, (iv) delivering to the Company already vested and owned Shares having a fair market value equal to such Tax Obligations, or (v) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences). To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any Tax Obligations by reducing the number of Shares otherwise deliverable to Participant. Further, if Participant is subject to tax in more than one jurisdiction between the Date of Grant and a date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges and agrees that the Company and/or the Service Recipient (and/or former employer, as applicable) may be required to withhold or account for tax in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the Option exercise, Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such amounts are not delivered at the time of exercise.
(c) Notice of Disqualifying Disposition of ISO Shares . If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant will immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant.
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(d) Code Section 409A . Under Code Section 409A, a stock right (such as the Option) that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified after October 3, 2004) that was granted with a per share exercise price that is determined by the Internal Revenue Service (the IRS) to be less than the fair market value of an underlying share on the date of grant (a discount option) may be considered deferred compensation. A stock right that is a discount option may result in (i) income recognition by the recipient of the stock right prior to the exercise of the stock right, (ii) an additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The discount option may also result in additional state income, penalty and interest tax to the recipient of the stock right. Participant acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the fair market value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the fair market value of a Share on the date of grant, Participant shall be solely responsible for Participants costs related to such a determination.
7. Rights as Stockholder . Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation, and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
8. No Guarantee of Continued Service . PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER, WHICH UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION 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 WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANTS RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANTS RELATIONSHIP AS A SERVICE PROVIDER, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
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9. Nature of Grant . In accepting the Option, Participant acknowledges, understands and agrees that:
(a) the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past;
(b) all decisions with respect to future option or other grants, if any, will be at the sole discretion of the Company;
(c) Participant is voluntarily participating in the Plan;
(d) the Option and any Shares acquired under the Plan are not intended to replace any pension rights or compensation;
(e) the Option and Shares acquired under the Plan and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(f) the future value of the Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty;
(g) if the underlying Shares do not increase in value, the Option will have no value;
(h) if Participant exercises the Option and acquires Shares, the value of such Shares may increase or decrease in value, even below the Exercise Price;
(i) for purposes of the Option, Participants engagement as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or any Parent or Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and unless otherwise expressly provided in this Option Agreement (including by reference in the Notice of Grant to other arrangements or contracts) or determined by the Administrator, (i) Participants right to vest in the Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g ., Participants period of service would not include any contractual notice period or any period of garden leave or similar period mandated under employment laws in the jurisdiction where Participant is a Service Provider or Participants employment or service agreement, if any, unless Participant is providing bona fide services during such time); and (ii) the period (if any) during which Participant may exercise the Option after such termination of Participants engagement as a Service Provider will commence on the date Participant ceases to actively provide services and will not be extended by any notice period mandated under employment laws in the jurisdiction where Participant is employed or terms of Participants engagement agreement, if any; the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of his or her Option grant (including whether Participant may still be considered to be providing services while on a leave of absence and consistent with local law);
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(j) unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Option Agreement do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(k) the following provisions apply only if Participant is providing services outside the United States:
the Option and the Shares subject to the Option are not part of normal or expected compensation or salary for any purpose;
Participant acknowledges and agrees that none of the Company, the Service Recipient, or any Parent or Subsidiary shall be liable for any foreign exchange rate fluctuation between Participants local currency and the United States Dollar that may affect the value of the Option or of any amounts due to Participant pursuant to the exercise of the Option or the subsequent sale of any Shares acquired upon exercise; and
no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from the termination of Participants engagement as a Service Provider (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and in consideration of the grant of the Option to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent, any Subsidiary or the Service Recipient, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Service Recipient from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim.
10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
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11. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participants personal data as described in this Option Agreement and any other Option grant materials by and among, as applicable, the Employer or other Service Recipient, the Company and any Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participants participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal information about Participant, including, but not limited to, Participants name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Options or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participants favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to a stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration, and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country of operation (e.g., the United States) may have different data privacy laws and protections than Participants country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participants participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participants participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her engagement as a Service Provider and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participants consent is that the Company would not be able to grant Participant Options or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participants ability to participate in the Plan. For more information on the consequences of Participants refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
12. Address for Notices . Any notice to be given to the Company under the terms of this Option Agreement will be addressed to the Company at Kodiak Sciences Inc., 2631 Hanover Street, Palo Alto, CA 94304, or at such other address as the Company may hereafter designate in writing.
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13. Non-Transferability of Option . This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Participant only by Participant.
14. Successors and Assigns . The Company may assign any of its rights under this Option Agreement to single or multiple assignees, and this Option Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Option Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Option Agreement may only be assigned with the prior written consent of the Company.
15. Additional Conditions to Issuance of Stock . If at any time the Company will determine, in its discretion, that the listing, registration, qualification or rule compliance of the Shares upon any securities exchange or under any state, federal or non-U.S. law, the tax code and related regulations or under the rulings or regulations of the United States Securities and Exchange Commission or any other governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other governmental regulatory authority is necessary or desirable as a condition to the purchase by, or issuance of Shares, to Participant (or his or her estate) hereunder, such purchase or issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval will have been completed, effected or obtained free of any conditions not acceptable to the Company. Subject to the terms of the Option Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time following the date of exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience.
16. Language . If Participant has received this Option Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
17. Interpretation . The Administrator will have the power to interpret the Plan and this Option Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the Administrator will be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Option Agreement.
18. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to the Option awarded under the Plan or future options that may be awarded under the Plan by electronic means or request Participants consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
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19. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Option Agreement.
20. Agreement Severable . In the event that any provision in this Option Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Option Agreement.
21. Amendment, Suspension or Termination of the Plan . By accepting this Option, Participant expressly warrants that he or she has received an Option under the Plan, and has received, read, and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
22. Governing Law and Venue . This Option Agreement will be governed by the laws of California, without giving effect to the conflict of law principles thereof. For purposes of litigating any dispute that arises under this Option or this Option Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation will be conducted in the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this Option is made and/or to be performed.
23. Country Addendum . Notwithstanding any provisions in this Option Agreement, this Option shall be subject to any special terms and conditions set forth in the appendix (if any) to this Option Agreement for Participants country (the Country Addendum). Moreover, if Participant relocates to one of the countries included in the Country Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Option Agreement.
24. Modifications to the Agreement . This Option Agreement and any applicable Separate Agreement constitute the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Option Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Option Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Option Agreement, the Company reserves the right to revise this Option Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code in connection with the Option.
25. No Waiver . Either partys failure to enforce any provision or provisions of this Option Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Option Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either partys right to assert all other legal remedies available to it under the circumstances.
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26. Tax Consequences . Participant has reviewed with its own tax advisors the U.S. federal, state, local and non-U.S. tax consequences of this investment and the transactions contemplated by this Option Agreement. With respect to such matters, Participant relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be responsible for Participants own tax liability that may arise as a result of this investment or the transactions contemplated by this Option Agreement.
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KODIAK SCIENCES INC.
2018 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
COUNTRY ADDENDUM
TERMS AND CONDITIONS
This Country Addendum includes additional terms and conditions that govern the Option granted to Participant under the Plan if Participant works in one of the countries listed below. If Participant is a citizen or resident of a country (or is considered as such for local law purposes) other than the one in which he or she is currently working or if Participant relocates to another country after receiving the Option, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will be applicable to Participant.
Certain capitalized terms used but not defined in this Country Addendum shall have the meanings set forth in the Plan, and/or the Stock Option Agreement to which this Country Addendum is attached.
NOTIFICATIONS
This Country Addendum also includes notifications relating to exchange control and other issues of which Participant should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the countries listed in this Country Addendum, as of (except as otherwise noted below). Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the notifications herein as the only source of information relating to the consequences of his or her participation in the Plan because the information may be outdated when Participant exercises the Option or sells Shares acquired under the Plan.
In addition, the notifications are general in nature and may not apply to Participants particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participants country may apply to Participants situation.
Finally, if Participant is a citizen or resident of a country other than the one in which Participant is currently working (or is considered as such for local law purposes) or if Participant moves to another country after the Option is granted, the information contained herein may not be applicable to Participant.
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EXHIBIT B
KODIAK SCIENCES INC.
2018 EQUITY INCENTIVE PLAN
EXERCISE NOTICE
Kodiak Sciences Inc.
2631 Hanover Street
Palo Alto, CA 94304
Attention: Stock Administration
1. Exercise of Option . Effective as of today, , , the undersigned (Purchaser) hereby elects to purchase shares (the Shares) of the Common Stock of Kodiak Sciences Inc. (the Company) under and pursuant to the 2018 Equity Incentive Plan (the Plan) and the Stock Option Agreement, dated and including the Notice of Grant, the Terms and Conditions of Stock Option Grant, and exhibits attached thereto (the Option Agreement). The purchase price for the Shares will be $ , as required by the Option Agreement.
2. Delivery of Payment . Purchaser herewith delivers to the Company the full purchase price of the Shares and any Tax Obligations (as defined in Section 6(a) of the Option Agreement) to be paid in connection with the exercise of the Option.
3. Representations of Purchaser . Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder . Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to the Option, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Purchaser as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan.
5. Tax Consultation . Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchasers purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
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6. Entire Agreement; Governing Law . The Plan, the Option Agreement, and any applicable Separate Agreement (as defined in the Option Agreement) are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement, and any applicable Separate 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 Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchasers interest except by means of a writing signed by the Company and Purchaser. This Option Agreement is governed by the internal substantive laws, but not the choice of law rules, of California.
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Exhibit 10.8
KODIAK SCIENCES INC.
2018 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
NOTICE OF RESTRICTED STOCK UNIT GRANT
Unless otherwise defined herein, the terms defined in the Kodiak Sciences Inc. 2018 Equity Incentive Plan (the Plan) will have the same defined meanings in this Restricted Stock Unit Agreement, which includes the Notice of Restricted Stock Unit Grant (the Notice of Grant), Terms and Conditions of Restricted Stock Unit Grant attached hereto as Exhibit A , and all appendices and exhibits attached thereto (all together, the Award Agreement).
Participant:
Address:
The undersigned Participant has been granted the right to receive an Award of Restricted Stock Units, subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Number: | ||||
Date of Grant: | ||||
Vesting Commencement Date: | ||||
Number of Restricted Stock Units: |
Vesting Schedule :
Subject to any acceleration provisions contained in the Plan or set forth below, the Restricted Stock Units will vest in accordance with the following schedule:
[ Twenty-five percent (25%) of the Restricted Stock Units will vest on the one (1)-year anniversary of the Vesting Commencement Date, and one sixteenth (1/16 th ) of the Restricted Stock Units will vest on each Quarterly Vesting Date (as defined below) thereafter, subject to Participant continuing to be a Service Provider through each such date. ]
A Quarterly Vesting Date is the first trading day on or after each of .
Except as otherwise provided in the following paragraph, in the event Participant ceases to be a Service Provider for any or no reason before Participant vests in the Restricted Stock Units, the Restricted Stock Units and Participants right to acquire any Shares hereunder will immediately terminate.
The vesting schedule above notwithstanding, the Restricted Stock Units shall be subject to the following special vesting acceleration provisions (referred to herein as the Accelerated Vesting Benefits), subject to Participants execution and delivery of a release and waiver of claims agreement drafted by and satisfactory to counsel for the Company, and in the case of termination,
such release and waiver of claims agreement must be executed and become effective within sixty (60) days following the employment termination date (Termination Date) or the second (2 nd ) anniversary of the Change in Control, as applicable (the date such release and waiver of claims agreement becomes effective, the Release Effective Date):
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If, at any time before the consummation of any Change in Control, Participants employment is terminated by the Company without Cause (as defined below or in a Separate Agreement, as applicable) and other than for death or Disability, or by Participant with Good Reason (as defined below or in a Separate Agreement, as applicable), then that number of Restricted Stock Units as would have vested in the twelve (12)-month period following the Termination Date, had Participant continued to be employed by the Company for such period, shall vest, effective as of the Release Effective Date. |
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If (i) on the date twenty-four (24) months immediately following the consummation of any Change in Control, Participant is providing services to the acquiring company as either an employee or a consultant or (ii) within twenty-four (24) months following the consummation of any Change in Control, Participants employment is terminated by the Company without Cause and other than for death or Disability, or by Participant for Good Reason (as defined below), then in either the case of (i) or (ii), one hundred percent (100%) of the Restricted Stock Units that remain unvested shall vest in full, effective as of the Release Effective Date. |
Unless any agreement between Participant and the Company (a Separate Agreement) provides a definition that is more favorable to Participant, Cause shall mean: (i) Participants conviction of, including pleading guilty or nolo contendere to, any felony or any crime involving dishonesty; (ii) Participants participation in any fraud or act of dishonesty against the Company that has caused or is reasonably expected to result in injury to the Company; (iii) a material violation by Participant of any of the Companys written policies or other serious misconduct, in each case that results in or is reasonably likely to result in material harm to Company; (iv) Participants willful and continued failure substantially to perform any of Participants job duties (other than as a result of total or partial Disability) that is not cured within thirty (30) days following written notice of Cause from the Company; (v) conduct by Participant which, in the good faith and reasonable determination of the Companys Board of Directors, demonstrates gross unfitness to serve; or (vi) Participants material breach of any agreement with the Company (or its subsidiaries or successors).
Unless any Separate Agreement provides a definition that is more favorable to Participant, Good Reason shall mean the occurrence of any one or more of the following events without the prior written consent of Participant: (i) a material reduction in base salary or targeted incentive bonus opportunity, or benefits; (ii) a material reduction in Participants title, duties, or responsibilities without Cause provided that a reassignment following a Change in Control to a position that is substantially similar to the position held prior to the Change in Control shall not constitute a material reduction in job responsibilities or duties; (iii) a relocation of Participants primary work location that increases Participants one-way commute by more than fifty (50) miles; (iv) failure of the successor company to assume obligations contained in the Award or any other equity compensation agreement in place between Participant and the Company at the time of the Change in Control; or (v) the Companys material breach of any terms of the Award or employment
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agreement with Participant; provided, however, that no such event or condition shall constitute Good Reason unless (x) Participant gives the Company a written notice of termination for Good Reason not more than ninety (90) days after the initial existence of the condition, (y) the grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice, and (z) the Termination Date occurs within ninety (90) days following the Companys receipt of such notice.
Notwithstanding anything herein to the contrary, in the event a Separate Agreement provides for vesting acceleration benefits that are more favorable than the Accelerated Vesting Benefits, the terms of the Separate Agreement shall apply in lieu of the Accelerated Vesting Benefits.
By Participants signature and the signature of the representative of Kodiak Sciences Inc. (the Company) below, Participant and the Company agree that this Award of Restricted Stock Units is granted under and governed by the terms and conditions of the Plan, any applicable Separate Agreement, and this Award Agreement, including the Terms and Conditions of Restricted Stock Unit Grant, attached hereto as Exhibit A , all of which are made a part of this document. Participant acknowledges receipt of a copy of the Plan. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement, and fully understands all provisions of the Plan and this Award Agreement. Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
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EXHIBIT A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT GRANT
1. Grant of Restricted Stock Units . The Company hereby grants to the individual (the Participant) named in the Notice of Grant of Restricted Stock Units of this Award Agreement (the Notice of Grant) under the Plan an Award of Restricted Stock Units, subject to all of the terms and conditions in this Award Agreement and the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Award Agreement, the terms and conditions of the Plan shall prevail.
2. Companys Obligation to Pay . Each Restricted Stock Unit represents the right to receive a Share on the date it vests. Unless and until the Restricted Stock Units will have vested in the manner set forth in Section 3 or 4, Participant will have no right to payment of any such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Unit will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
3. Vesting Schedule . Except as provided in Section 4, and subject to Section 5, the Restricted Stock Units awarded by this Award Agreement will vest in accordance with the vesting schedule set forth in the Notice of Grant, subject to Participant continuing to be a Service Provider through each applicable vesting date.
4. Payment after Vesting .
(a) General Rule . Subject to Section 8, any Restricted Stock Units that vest will be paid to Participant (or in the event of Participants death, to his or her properly designated beneficiary or estate) in whole Shares. Subject to the provisions of Section 4(b), such vested Restricted Stock Units shall be paid in whole Shares as soon as practicable after vesting, but in each such case within sixty (60) days following the vesting date. In no event will Participant be permitted, directly or indirectly, to specify the taxable year of payment of any Restricted Stock Units payable under this Award Agreement.
(b) Acceleration .
(i) Discretionary Acceleration . The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If Participant is a U.S. taxpayer, the payment of Shares vesting pursuant to this Section 4(b) shall in all cases be paid at a time or in a manner that is exempt from, or complies with, Section 409A. The prior sentence may be superseded in a future agreement or amendment to this Award Agreement only by direct and specific reference to such sentence.
(ii) Notwithstanding anything in the Plan or this Award Agreement or any other agreement (whether entered into before, on or after the Date of Grant), if the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units is accelerated in connection with Participants termination as a Service Provider (provided that such termination is a separation from service within the meaning of Section 409A, as determined by the Company), other than due to Participants death, and if (x) Participant is a U.S. taxpayer and a specified employee within the meaning of Section 409A at the time of such termination as a Service Provider and (y) the payment of such accelerated Restricted Stock Units will result in the imposition of additional tax under Section 409A if paid to Participant on or within the six (6) month period following Participants termination as a Service Provider, then the payment of such accelerated Restricted Stock Units will not be made until the date six (6) months and one (1) day following the date of Participants termination as a Service Provider, unless Participant dies following his or her termination as a Service Provider, in which case, the Restricted Stock Units will be paid in Shares to Participants estate as soon as practicable following his or her death.
(c) Section 409A . It is the intent of this Award Agreement that it and all payments and benefits to U.S. taxpayers hereunder be exempt from, or comply with, the requirements of Section 409A so that none of the Restricted Stock Units provided under this Award Agreement or Shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to be so exempt or so comply. Each payment payable under this Award Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). However, in no event will the Company reimburse Participant, or be otherwise responsible for, any taxes or costs that may be imposed on Participant as a result of Section 409A. For purposes of this Award Agreement, Section 409A means Section 409A of the Code, and any final Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from time to time.
5. Forfeiture Upon Termination as a Service Provider . Notwithstanding any contrary provision of this Award Agreement, if Participant ceases to be a Service Provider for any or no reason, the then-unvested Restricted Stock Units awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and Participant will have no further rights thereunder.
6. Tax Consequences . Participant has reviewed with his or her own tax advisors the U.S. federal, state, local and non-U.S. tax consequences of this investment and the transactions contemplated by this Award Agreement. With respect to such matters, Participant relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be responsible for Participants own tax liability that may arise as a result of this investment or the transactions contemplated by this Award Agreement.
7. Death of Participant . Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made to Participants designated beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participants estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
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8. Tax Obligations
(a) Responsibility for Taxes . Participant acknowledges that, regardless of any action taken by the Company or, if different, Participants employer (the Employer) or Parent or Subsidiary to which Participant is providing services (together, the Company, Employer and/or Parent or Subsidiary to which the Participant is providing services, the Service Recipient), the ultimate liability for any tax and/or social insurance liability obligations and requirements in connection with the Restricted Stock Units, including, without limitation, (i) all federal, state, and local taxes (including the Participants Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Employer or other payment of tax-related items related to Participants participation in the Plan and legally applicable to Participant, (ii) the Participants and, to the extent required by the Company (or Service Recipient), the Companys (or Service Recipients) fringe benefit tax liability, if any, associated with the grant, vesting, or settlement of the Restricted Stock Units or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to the Restricted Stock Units (or settlement thereof or issuance of Shares thereunder) (collectively, the Tax Obligations), is and remains Participants responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate Participants liability for Tax Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Service Recipient (or former employer, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b) Tax Withholding . When Shares are issued as payment for vested Restricted Stock Units, Participant generally will recognize immediate U.S. taxable income if Participant is a U.S. taxpayer. If Participant is a non-U.S. taxpayer, Participant will be subject to applicable taxes in his or her jurisdiction. Pursuant to such procedures as the Administrator may specify from time to time, the Company and/or Service Recipient shall withhold the amount required to be withheld for the payment of Tax Obligations. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such Tax Obligations, in whole or in part (without limitation), if permissible by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participants wages or other cash compensation paid to Participant by the Company and/or the Service Recipient,
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(iv) delivering to the Company already vested and owned Shares having a fair market value equal to such Tax Obligations, or (v) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences). To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any Tax Obligations by reducing the number of Shares otherwise deliverable to Participant and, until determined otherwise by the Company, this will be the method by which such Tax Obligations are satisfied. Further, if Participant is subject to tax in more than one jurisdiction between the Date of Grant and a date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges and agrees that the Company and/or the Service Recipient (and/or former employer, as applicable) may be required to withhold or account for tax in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of such Tax Obligations hereunder at the time any applicable Restricted Stock Units otherwise are scheduled to vest pursuant to Sections 3 or 4, Participant will permanently forfeit such Restricted Stock Units and any right to receive Shares thereunder and such Restricted Stock Units will be returned to the Company at no cost to the Company. Participant acknowledges and agrees that the Company may refuse to deliver the Shares if such Tax Obligations are not delivered at the time they are due.
9. Rights as Stockholder . Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation, and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
10. No Guarantee of Continued Service . PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE RESTRICTED STOCK UNITS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER, WHICH UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS RESTRICTED STOCK UNIT AWARD OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD 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 IN ANY WAY WITH PARTICIPANTS RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANTS RELATIONSHIP AS A SERVICE PROVIDER, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
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11. Grant is Not Transferable . Except to the limited extent provided in Section 7, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.
12. Nature of Grant . In accepting the grant, Participant acknowledges, understands, and agrees that:
(a) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past;
(b) all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;
(c) Participant is voluntarily participating in the Plan;
(d) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;
(e) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(f) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted;
(g) for purposes of the Restricted Stock Units, Participants status as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or any Parent or Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and unless otherwise expressly provided in this Award Agreement (including by reference in the Notice of Grant to other arrangements or contracts) or determined by the Administrator, Participants right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., Participants period of service would not include any contractual notice period or any period of garden leave or similar period mandated under employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any, unless Participant is providing bona fide services during such time); the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the Restricted Stock Units grant (including whether Participant may still be considered to be providing services while on a leave of absence and consistent with local law);
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(h) unless otherwise provided in the Plan or by the Company in its discretion, the Restricted Stock Units and the benefits evidenced by this Award Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(i) the following provisions apply only if Participant is providing services outside the United States:
(i) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not part of normal or expected compensation or salary for any purpose;
(ii) Participant acknowledges and agrees that none of the Company, the Employer or any Parent or Subsidiary shall be liable for any foreign exchange rate fluctuation between Participants local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement; and
(iii) no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting from the termination of Participants status as a Service Provider (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and in consideration of the grant of the Restricted Stock Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent or Subsidiary or the Service Recipient, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Service Recipient from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim.
13. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
14. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participants personal data as described in this Award Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, or other Service Recipient the Company and any Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participants participation in the Plan.
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Participant understands that the Company and the Service Recipient may hold certain personal information about Participant, including, but not limited to, Participants name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participants favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to a stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration, and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country of operation (e.g., the United States) may have different data privacy laws and protections than Participants country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, any stock plan service provider selected by the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participants participation in the Plan. Participant understands if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her status as a Service Provider and career with the Service Recipient will not be adversely affected; the only adverse consequence of refusing or withdrawing Participants consent is that the Company would not be able to grant Participant Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participants ability to participate in the Plan. For more information on the consequences of Participants refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
15. Address for Notices . Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at Kodiak Sciences Inc., 2631 Hanover Street, Palo Alto, CA 94304, or at such other address as the Company may hereafter designate in writing.
16. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to the Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means or request Participants consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any online or electronic system established and maintained by the Company or a third party designated by the Company.
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17. No Waiver . Either partys failure to enforce any provision or provisions of this Award Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Award Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either partys right to assert all other legal remedies available to it under the circumstances.
18. Successors and Assigns . The Company may assign any of its rights under this Award Agreement to single or multiple assignees, and this Award Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Award Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Award Agreement may only be assigned with the prior written consent of the Company.
19. Additional Conditions to Issuance of Stock . If at any time the Company will determine, in its discretion, that the listing, registration, qualification or rule compliance of the Shares upon any securities exchange or under any state, federal or non-U.S. law, the tax code and related regulations or under the rulings or regulations of the United States Securities and Exchange Commission or any other governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his or her estate) hereunder, such issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval will have been completed, effected or obtained free of any conditions not acceptable to the Company. Subject to the terms of the Award Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time following the date of vesting of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.
20. Language . If Participant has received this Award Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
21. Interpretation . The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the Administrator will be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Award Agreement.
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22. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
23. Amendment, Suspension or Termination of the Plan . By accepting this Award, Participant expressly warrants that he or she has received an Award of Restricted Stock Units under the Plan, and has received, read, and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
24. Modifications to the Award Agreement . This Award Agreement and any applicable Separate Agreement constitute the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A in connection to this Award of Restricted Stock Units.
25. Governing Law; Venue; Severability . This Award Agreement and the Restricted Stock Units are governed by the internal substantive laws, but not the choice of law rules, of California. For purposes of litigating any dispute that arises under these Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation will be conducted in the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this Award Agreement is made and/or to be performed. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Award Agreement shall continue in full force and effect.
26. Entire Agreement . The Plan and any applicable Separate Agreement are incorporated herein by reference. The Plan, this Award Agreement (including the appendices and exhibits referenced herein), and any applicable Separate 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 Participant with respect to the subject matter hereof, and may not be modified adversely to the Participants interest except by means of a writing signed by the Company and Participant.
27. Country Addendum . Notwithstanding any provisions in this Award Agreement, the Restricted Stock Unit grant shall be subject to any special terms and conditions set forth in the appendix (if any) to this Award Agreement for Participants country. Moreover, if Participant relocates to one of the countries included in the Country Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Award Agreement.
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KODIAK SCIENCES INC.
2018 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
COUNTRY ADDENDUM
TERMS AND CONDITIONS
This Country Addendum includes additional terms and conditions that govern the Award of Restricted Stock Units granted to Participant under the Plan if Participant works in one of the countries listed below. If Participant is a citizen or resident of a country (or is considered as such for local law purposes) other than the one in which he or she is currently working or if Participant relocates to another country after receiving the Award of Restricted Stock Units, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will be applicable to Participant.
Certain capitalized terms used but not defined in this Country Addendum shall have the meanings set forth in the Plan, and/or the Restricted Stock Unit Agreement to which this Country Addendum is attached.
NOTIFICATIONS
This Country Addendum also includes notifications relating to exchange control and other issues of which Participant should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the countries listed in this Country Addendum, as of (except as otherwise noted below). Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the notifications herein as the only source of information relating to the consequences of his or her participation in the Plan because the information may be outdated when Participant vests in the Restricted Stock Units and acquires Shares, or when Participant subsequently sell Shares acquired under the Plan.
In addition, the notifications are general in nature and may not apply to Participants particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participants country may apply to Participants situation.
Finally, if Participant is a citizen or resident of a country other than the one in which Participant is currently working (or is considered as such for local law purposes) or if Participant moves to another country after receiving the Award of Restricted Stock Units, the information contained herein may not be applicable to Participant.
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Exhibit 10.9
KODIAK SCIENCES INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
(Adopted on August 14, 2018 and effective as of the business day prior to the Companys initial public offering)
1. Purpose . The purpose of the Plan is to provide employees of the Company and its Designated Companies with an opportunity to purchase Common Stock through accumulated Contributions. The Company intends for the Plan to have two components: a component that is intended to qualify as an employee stock purchase plan under Section 423 of the Code (the 423 Component) and a component that is not intended to qualify as an employee stock purchase plan under Section 423 of the Code (the Non-423 Component). The provisions of the 423 Component, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. An option to purchase shares of Common Stock under the Non-423 Component will be granted pursuant to rules, procedures, or sub-plans adopted by the Administrator designed to achieve tax, securities laws, or other objectives for Eligible Employees and the Company. Except as otherwise provided herein, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
2. Definitions .
(a) Administrator means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b) Affiliate means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c) 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 options are, or will be, granted under the Plan.
(d) Board means the Board of Directors of the Company.
(e) 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 fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the stockholders of the Company immediately before
such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Companys voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; 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 subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii) A change in the ownership of a substantial portion of the Companys 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 fifty percent (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, the following will not constitute a change in the ownership of a substantial portion of the Companys assets: (A) a transfer to an entity that is controlled by the Companys 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 Companys stock, (2) an entity, fifty percent (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, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (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, 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 definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase, or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final U.S. Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Companys incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction.
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(f) Code means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code will include such section, any valid regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g) Committee means a committee of the Board appointed in accordance with Section 14 hereof.
(h) Common Stock means the common stock of the Company.
(i) Company means Kodiak Sciences Inc., a Delaware corporation, or any successor thereto.
(j) Compensation includes an Eligible Employees base straight time gross earnings but excludes payments for incentive compensation, bonuses, payments for overtime and shift premium, equity compensation income and other similar compensation. The Administrator, in its discretion, may, on a uniform and nondiscriminatory basis, establish a different definition of Compensation for a subsequent Offering Period.
(k) Contributions means the payroll deductions and other additional payments that the Company may permit to be made by a Participant to fund the exercise of options granted pursuant to the Plan.
(l) Designated Company means any Subsidiary or Affiliate of the Company that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies, provided, however that at any given time, a Subsidiary that is a Designated Company under the 423 Component will not be a Designated Company under the Non-423 Component.
(m) Director means a member of the Board.
(n) Eligible Employee means any individual who is a common law employee providing services to the Company or a Designated Company and is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year by the Employer, or any lesser number of hours per week and/or number of months in any calendar year established by the Administrator (if required under applicable local law) for purposes of any separate Offering or the Non-423 Component. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves or is legally protected under Applicable Laws. Where the period of leave exceeds three (3) months and the individuals right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date in an Offering, determine (on a uniform and nondiscriminatory basis or as
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otherwise permitted by Treasury Regulation Section 1.423-2) that the definition of Eligible Employee will or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (iii) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Offering in an identical manner to all highly compensated individuals of the Employer whose Eligible Employees are participating in that Offering. Each exclusion will be applied with respect to an Offering in a manner complying with U.S. Treasury Regulation Section 1.423-2(e)(2)(ii).
(o) Employer means the employer of the applicable Eligible Employee(s).
(p) Enrollment Date means the first Trading Day of an Offering Period.
(q) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.
(r) Exercise Date means a date on which each outstanding option granted under the Plan will be exercised (except if the Plan has been terminated), as may be determined by the Administrator, in its discretion and on a uniform and nondiscriminatory basis from time to time prior to an Enrollment Date for all options to be granted on such Enrollment Date. For purposes of clarification, there may be multiple Exercise Dates during an Offering Period.
(s) Fair Market Value means, as of any date, the value of a share of Common Stock determined as follows:
(i) the Fair Market Value will be the closing sales price for Common Stock as quoted on any established stock exchange or national market system (including without limitation the New York Stock Exchange, NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market) on which the Common Stock is listed on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable. If the determination date for the Fair Market Value occurs on a non-trading day (i.e., a weekend or holiday), the Fair Market Value will be such price on the immediately preceding trading day, unless otherwise determined by the Administrator. In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
The determination of fair market value for purposes of tax withholding may be made in the Administrators discretion subject to Applicable Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
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(ii) In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
(t) Fiscal Year means a fiscal year of the Company.
(u) New Exercise Date means a new Exercise Date if the Administrator shortens any Offering Period then in progress.
(v) Offering means an offer under the Plan of an option that may be exercised during an Offering Period as further described in Section 4. For purposes of the Plan, the Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible Employees of one or more Employers will participate, even if the dates of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. To the extent permitted by U.S. Treasury Regulation Section 1.423-2(a)(1), the terms of each Offering need not be identical provided that the terms of the Plan and an Offering together satisfy U.S. Treasury Regulation Section 1.423-2(a)(2) and (a)(3).
(w) Offering Period means a period beginning on such date as may be determined by the Administrator in its discretion and ending on such Exercise Date as may be determined by the Administrator in its discretion, in each case on a uniform and nondiscriminatory basis. The duration and timing of Offering Periods may be changed pursuant to Sections 4, 20, and 30.
(x) Parent means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(y) Participant means an Eligible Employee that participates in the Plan.
(z) Plan means this Kodiak Sciences Inc. 2018 Employee Stock Purchase Plan.
(aa) Purchase Period means the period, as determined by the Administrator in its discretion on a uniform and nondiscriminatory basis, during an Offering Period that commences on the Offering Periods Enrollment Date and ends on the next Exercise Date, except that if the Administrator determines that more than one Purchase Period should occur within an Offering Period, subsequent Purchase Periods within such Offering Period commence after one Exercise Date and end with the next Exercise Date at such time or times as the Administrator determines prior to the commencement of the Offering Period.
(bb) Purchase Price means the price per Share of the Shares purchased under any option granted under the Plan as determined by the Administrator from time to time, in its discretion and on a uniform and nondiscriminatory basis for all options to be granted on an Enrollment Date. However, in no event will the Purchase Price be less than eighty-five percent (85%) of the lower of the Fair Market Value of a share of Common Stock on the Enrollment Date or the Fair Market Value of a share of Common Stock on the Exercise Date and at all times in compliance with Section 423 of the Code (or any successor rule or provision or any other Applicable Law, regulation or stock exchange rule).
(cc) Registration Date means the effective date of the Registration Statement.
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(dd) Registration Statement means the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Common Stock.
(ee) Subsidiary means a subsidiary corporation, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(ff) Trading Day means a day on which the national stock exchange upon which the Common Stock is listed is open for trading.
(gg) U.S. Treasury Regulations means the Treasury regulations of the Code. Reference to a specific Treasury Regulation will include such Treasury Regulation, the section of the Code under which such regulation was promulgated, and any comparable provision of any future legislation or regulation amending, supplementing, or superseding such Section or regulation.
3. Eligibility .
(a) Offering Periods . Any Eligible Employee on a given Enrollment Date will be eligible to participate in the Plan, subject to the requirements of Section 5.
(b) Non-U.S. Employees . Eligible Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate Section 423 of the Code. In the case of the Non-423 Component, Eligible Employees may be excluded from participation in the Plan or an Offering if the Administrator determines that participation of such Eligible Employees is not advisable or practicable.
(c) Limitations . Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate, which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
4. Offering Periods . Offering Periods will expire on the earliest to occur of (i) the completion of the purchase of Shares on the last Exercise Date occurring within twenty-seven (27) months of the applicable Enrollment Date on which the option to purchase Shares was granted, or (ii) such shorter period as may be established by the Administrator from time to time, in its discretion and on a uniform and nondiscriminatory basis, prior to an Enrollment Date for all options to be granted on such Enrollment Date.
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5. Participation . An Eligible Employee may participate in the Plan by (i) submitting to the Companys stock administration office (or its designee) a properly completed subscription agreement authorizing Contributions in the form provided by the Administrator for such purpose or (ii) following an electronic or other enrollment procedure determined by the Administrator, in either case on or before a date determined by the Administrator prior to an applicable Enrollment Date.
6. Contributions .
(a) At the time a Participant enrolls in the Plan pursuant to Section 5, he or she will elect to have Contributions (in the form of payroll deductions or otherwise, to the extent permitted by the Administrator) made on each pay day during the Offering Period in an amount that the Administrator may establish from time to time, in its discretion and on a uniform and nondiscriminatory basis, for all options to be granted on any Enrollment Date. The Administrator, in its sole discretion, may permit all Participants in a specified Offering to contribute amounts to the Plan through payment by cash, check or other means set forth in the subscription agreement prior to each Exercise Date of each Purchase Period. A Participants subscription agreement will remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(b) In the event Contributions are made in the form of payroll deductions, such payroll deductions for a Participant will commence on the first pay day following the Enrollment Date and will end on the last pay day on or prior to the last Exercise Date of such Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof.
(c) All Contributions made for a Participant will be credited to his or her account under the Plan and Contributions will be made in whole percentages of his or her Compensation only. A Participant may not make any additional payments into such account.
(d) A Participant may discontinue his or her participation in the Plan as provided under Section 10. Except as may be permitted by the Administrator, as determined in its sole discretion, a Participant may not change the rate of his or her Contributions during an Offering Period.
(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(d), a Participants Contributions may be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section 423(b)(8) of the Code and Section 3(d) hereof, Contributions will recommence at the rate originally elected by the Participant effective as of the beginning of the first Purchase Period scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10.
(f) Notwithstanding any provisions to the contrary in the Plan, the Administrator may allow Participants to participate in the Plan via cash contributions instead of payroll deductions if (i) payroll deductions are not permitted under applicable local law, (ii) the Administrator determines that cash contributions are permissible under Section 423 of the Code; or (iii) the Participants are participating in the Non-423 Component.
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(g) At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of (or any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for the Companys or Employers federal, state, local or any other tax liability payable to any authority including taxes imposed by jurisdictions outside of the U.S., national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock (or any other time that a taxable event related to the Plan occurs). At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participants compensation the amount necessary for the Company or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee. In addition, the Company or the Employer may, but will not be obligated to, withhold from the proceeds of the sale of Common Stock or any other method of withholding the Company or the Employer deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
7. Grant of Option . On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Eligible Employees Contributions accumulated prior to such Exercise Date and retained in the Eligible Employees account as of the Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase during each Purchase Period more than that number of shares of Common Stock determined by the Administrator prior to the applicable Purchase Period (subject to any adjustment pursuant to Section 19) and provided further that such purchase will be subject to the limitations set forth in Sections 3(d) and 13. The Eligible Employee may accept the grant of such option by electing to participate in the Plan in accordance with the requirements of Section 5. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchase during each Purchase Period. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10. The option will expire on the last day of the Offering Period.
8. Exercise of Option .
(a) Unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stock will be exercised automatically on each Exercise Date, and the maximum number of full shares subject to the option will be purchased for such Participant at the applicable Purchase Price with the accumulated Contributions from his or her account. No fractional shares of Common Stock will be purchased; any Contributions accumulated in a Participants account, which are not sufficient to purchase a full share will be retained in the Participants account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the Participant as provided in Section 10. Any other funds left over in a Participants account after the Exercise Date will be returned to the Participant. During a Participants lifetime, a Participants option to purchase shares hereunder is exercisable only by him or her.
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(b) If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20. The Company may make a pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Companys stockholders subsequent to such Enrollment Date.
9. Delivery . As soon as reasonably practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each Participant of the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. The Company may permit or require that shares be deposited directly with a broker designated by the Company or to a designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may require that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.
10. Withdrawal .
(a) A Participant may withdraw all but not less than all the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by (i) submitting to the Companys stock administration office (or its designee) a written notice of withdrawal in the form determined by the Administrator for such purpose (which may be similar to the form attached hereto as Exhibit B ), or (ii) following an electronic or other withdrawal procedure determined by the Administrator. All of the Participants Contributions credited to his or her account will be paid to such Participant promptly after receipt of notice of withdrawal and such Participants option for the Offering Period will be automatically terminated, and no further Contributions for the purchase of shares will be made for such Offering Period. If a Participant withdraws from an Offering Period, Contributions will not resume at the beginning of the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.
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(b) A Participants withdrawal from an Offering Period will not have any effect on his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or in succeeding Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
11. Termination of Employment . Upon a Participants ceasing to be an Eligible Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to such Participants account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15, and such Participants option will be automatically terminated. Unless otherwise provided by the Administrator, a Participant whose employment transfers between entities through a termination with an immediate rehire (with no break in service) by the Company or a Designated Company will not be treated as terminated under the Plan; however, if a Participant transfers from an Offering under the 423 Component to the Non-423 Component, the exercise of the option will be qualified under the 423 Component only to the extent it complies with Section 423 of the Code, unless otherwise provided by the Administrator.
12. Interest . No interest will accrue on the Contributions of a participant in the Plan, except as may be required by Applicable Law, as determined by the Company, and if so required by the laws of a particular jurisdiction, will apply to all Participants in the relevant Offering under the 423 Component, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f).
13. Stock .
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, upon effectiveness of the Plan as provided in Section 24, the initial maximum number of shares of Common Stock that will be made available for sale under the Plan will be 180,000 shares of Common Stock (the Initial Share Reserve ). Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, upon the filing of the Companys amended and restated certificate of incorporation with the Secretary of State of the State of Delaware in connection with the closing of the Companys initial public offering, the maximum number of shares of Common Stock that will be made available for sale under the Plan will be increased to a total of 460,000 shares of Common Stock, which figure includes the Initial Share Reserve. The number of shares of Common Stock available for issuance under the Plan will be increased on the first day of each Fiscal Year beginning for the Fiscal Year following the Fiscal Year in which the first Enrollment Date (if any) occurs equal to the least of (i) 920,000 shares of Common Stock, (ii) 1% of the outstanding shares of Common Stock on the last day of the immediately preceding Fiscal Year, or (iii) an amount determined by the Administrator.
(b) Until the shares of Common Stock are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will have only the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder will exist with respect to such shares.
(c) Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse.
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14. Administration . The Plan will be administered by the Board or a Committee appointed by the Board, which Committee will be constituted to comply with Applicable Laws. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to delegate ministerial duties to any of the Companys employees, to designate separate Offerings under the Plan, to designate Subsidiaries and Affiliates of the Company as participating in the 423 Component or Non-423 Component, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures that it deems necessary for the administration of the Plan (including, without limitation, to adopt such procedures and sub-plans as are necessary or appropriate to permit the participation in the Plan by employees who are foreign nationals or employed outside the U.S., the terms of which sub-plans may take precedence over other provisions of this Plan, with the exception of Section 13(a) hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan will govern the operation of such sub-plan). Unless otherwise determined by the Administrator, the Eligible Employees eligible to participate in each sub-plan will participate in a separate Offering or in the Non-423 Component. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding eligibility to participate, the definition of Compensation, handling of Contributions, making of Contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that vary with applicable local requirements. The Administrator also is authorized to determine that, to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f), the terms of an option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the Plan or the same Offering to employees resident solely in the U.S. Every finding, decision, and determination made by the Administrator will, to the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary .
(a) If permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participants account under the Plan in the event of such Participants death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, if permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any cash from the Participants account under the Plan in the event of such Participants death prior to exercise of the option. If a Participant is married and the designated beneficiary is not the spouse, spousal consent will be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant at any time by notice in a form determined by the Administrator. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participants death, the Company will deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
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(c) All beneficiary designations will be in such form and manner as the Administrator may designate from time to time. Notwithstanding Sections 15(a) and (b) above, the Company and/or the Administrator may decide not to permit such designations by Participants in non-U.S. jurisdictions to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
16. Transferability . Neither Contributions credited to a Participants account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds . The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be obligated to segregate such Contributions except under Offerings or for Participants in the Non-423 Component for which Applicable Laws require that Contributions to the Plan by Participants be segregated from the Companys general corporate funds and/or deposited with an independent third party. Until shares of Common Stock are issued, Participants will have only the rights of an unsecured creditor with respect to such shares.
18. Reports . Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to participating Eligible Employees at least annually, which statements will set forth the amounts of Contributions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
19. Adjustments, Dissolution, Liquidation, Merger, or Change in Control .
(a) Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, the Administrator, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and the numerical limits of Sections 7 and 13.
(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Companys proposed dissolution or liquidation. The Administrator will notify each Participant in writing or electronically, prior to the New Exercise Date, that the Exercise Date for the Participants option has been changed to the New Exercise Date and that the Participants option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
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(c) Merger or Change in Control . In the event of a merger or Change in Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date on which such Offering Period will end. The New Exercise Date will occur before the date of the Companys proposed merger or Change in Control. The Administrator will notify each Participant in writing or electronically prior to the New Exercise Date, that the Exercise Date for the Participants option has been changed to the New Exercise Date and that the Participants option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination .
(a) The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the Administrator in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 19). If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon, except as otherwise required under Applicable Laws, as further set forth in Section 12 hereof) as soon as administratively practicable.
(b) Without stockholder consent and without limiting Section 20(a), the Administrator will be entitled to change the Offering Periods or Purchase Periods, designate separate Offerings, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit Contributions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Companys processing of properly completed Contribution elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with Contribution amounts, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan.
(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i) amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
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(ii) altering the Purchase Price for any Offering Period or Purchase Period including an Offering Period or Purchase Period underway at the time of the change in Purchase Price;
(iii) shortening any Offering Period or Purchase Period by setting a New Exercise Date, including an Offering Period or Purchase Period underway at the time of the Administrator action;
(iv) reducing the maximum percentage of Compensation a Participant may elect to set aside as Contributions; and
(v) reducing the maximum number of shares of Common Stock a Participant may purchase during any Offering Period or Purchase Period.
Such modifications or amendments will not require stockholder approval or the consent of any Participants.
21. Notices . All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares . Shares of Common Stock will not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the U.S. Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option 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 by any of the aforementioned applicable provisions of law.
23. Code Section 409A. The 423 Component of the Plan is exempt from the application of Code Section 409A and any ambiguities herein will be interpreted to so be exempt from Code Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Code Section 409A or that any provision in the Plan would cause an option under the Plan to be subject to Code Section 409A, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participants consent, to exempt any outstanding
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option or future option that may be granted under the Plan from or to allow any such options to comply with Code Section 409A, but only to the extent any such amendments or action by the Administrator would not violate Code Section 409A. Notwithstanding the foregoing, the Company will have no liability to a Participant or any other party if the option to purchase Common Stock under the Plan that is intended to be exempt from or compliant with Code Section 409A is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with Code Section 409A.
24. Term of Plan . The Plan will become effective upon the later to occur of (i) its adoption by the Board or (ii) the business day immediately prior to the Registration Date. It will continue in effect for a term of twenty (20) years, unless sooner terminated under Section 20.
25. 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 by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
26. Governing Law . The Plan will be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions).
27. No Right to Employment . Participation in the Plan by a Participant will not be construed as giving a Participant the right to be retained as an employee of the Company or a Subsidiary or Affiliate of the Company, as applicable. Further, the Company or a Subsidiary or Affiliate of the Company may dismiss a Participant from employment at any time, free from any liability or any claim under the Plan.
28. Severability . If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
29. Compliance with Applicable Laws . The terms of this Plan are intended to comply with all Applicable Laws and will be construed accordingly.
30. Automatic Transfer to Low Price Offering Period . To the extent permitted by Applicable Laws, if the Fair Market Value on any Exercise Date in an Offering Period is lower than the Fair Market Value on the Enrollment Date of such Offering Period, then all Participants in such Offering Period automatically will be withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.
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EXHIBIT A
KODIAK SCIENCES INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Original Application | Offering Date: | |
Change in Payroll Deduction Rate |
1. (Employee) hereby elects to participate in the Kodiak Sciences Inc. 2018 Employee Stock Purchase Plan (the Plan) and subscribes to purchase shares of the Companys Common Stock in accordance with this Subscription Agreement and the Plan. Unless otherwise defined herein, the terms defined in the 2018 Employee Stock Purchase Plan (the Plan) shall have the same defined meanings in this Subscription Agreement.
2. Employee hereby authorizes payroll deductions from each paycheck in the amount of % (from 1% to [ ]%) of his or her Compensation on each payday during the Offering Period in accordance with the Plan. (Please note that no fractional percentages are permitted.)
3. Employee understands that said payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. Employee understands that if he or she does not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise his or her option and purchase Common Stock under the Plan.
4. Employee has received a copy of the complete Plan and its accompanying prospectus. Employee understands that his or her participation in the Plan is in all respects subject to the terms of the Plan.
5. Shares of Common Stock purchased by Employee under the Plan should be issued in the name(s) of (Employee or Employee and Spouse only).
6. Employee understands that if he or she disposes of any shares that he or she purchased under the Plan within two (2) years after the Enrollment Date (the first day of the Offering Period during which he or she purchased such shares) or one (1) year after the applicable Exercise Date, he or she will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased over the price paid for the shares. Employee hereby agrees to notify the Company in writing within thirty (30) days after the date of any disposition of such shares and to make adequate provision for federal, state or other tax withholding obligations, if any, that arise upon the disposition of such shares . The Company may, but will not be obligated to, withhold from Employees compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to Employees sale or early disposition of such shares. Employee understands
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that if he or she disposes of such shares at any time after the expiration of the two (2)-year and one-(1) year holding periods, he or she will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (i) the excess of the fair market value of the shares at the time of such disposition over the purchase price paid for the shares, or (ii) fifteen percent (15%) of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
7. Employee hereby agrees to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon Employees eligibility to participate in the Plan.
Employees Social Security Number: |
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Employees Address: |
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EMPLOYEE UNDERSTANDS THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY EMPLOYEE.
Dated: |
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Signature of Employee |
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EXHIBIT B
KODIAK SCIENCES INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
Unless otherwise defined herein, the terms defined in the 2018 Employee Stock Purchase Plan (the Plan) shall have the same defined meanings in this Notice of Withdrawal.
The undersigned Participant in the Offering Period of the Kodiak Sciences Inc. 2018 Employee Stock Purchase Plan that began on , (the Offering Date) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be terminated automatically. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned will be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant: |
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Signature: |
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Exhibit 10.10
KODIAK SCIENCES INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
FORM OF SUBSCRIPTION AGREEMENT
Original Application | Offering Date: | |
Change in Payroll Deduction Rate |
1. (Employee) hereby elects to participate in the Kodiak Sciences Inc. 2018 Employee Stock Purchase Plan (the Plan) and subscribes to purchase shares of the Companys Common Stock in accordance with this Subscription Agreement and the Plan. Unless otherwise defined herein, the terms defined in the 2018 Employee Stock Purchase Plan (the Plan) shall have the same defined meanings in this Subscription Agreement.
2. Employee hereby authorizes payroll deductions from each paycheck in the amount of % (from 1% to [ ]%) of his or her Compensation on each payday during the Offering Period in accordance with the Plan. (Please note that no fractional percentages are permitted.)
3. Employee understands that said payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. Employee understands that if he or she does not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise his or her option and purchase Common Stock under the Plan.
4. Employee has received a copy of the complete Plan and its accompanying prospectus. Employee understands that his or her participation in the Plan is in all respects subject to the terms of the Plan.
5. Shares of Common Stock purchased by Employee under the Plan should be issued in the name(s) of (Employee or Employee and Spouse only).
6. Employee understands that if he or she disposes of any shares that he or she purchased under the Plan within two (2) years after the Enrollment Date (the first day of the Offering Period during which he or she purchased such shares) or one (1) year after the applicable Exercise Date, he or she will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased over the price paid for the shares. Employee hereby agrees to notify the Company in writing within thirty (30) days after the date of any disposition of such shares and to make adequate provision for federal, state or other tax withholding obligations, if any, that arise upon the disposition of such shares . The Company may, but will not be obligated to, withhold from Employees compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to Employees sale or early disposition of such shares. Employee understands that if he or she disposes of such shares at any time after the expiration of the two (2)-year and
one-(1) year holding periods, he or she will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (i) the excess of the fair market value of the shares at the time of such disposition over the purchase price paid for the shares, or (ii) fifteen percent (15%) of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
7. Employee hereby agrees to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon Employees eligibility to participate in the Plan.
Employees Social Security Number: |
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Employees Address: |
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EMPLOYEE UNDERSTANDS THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY EMPLOYEE.
Dated: |
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Signature of Employee |
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Exhibit 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
This E XECUTIVE E MPLOYMENT A GREEMENT (the Agreement ), is entered into as of September 6, 2018 (the Effective Date ), by and between Kodiak Sciences Inc., a Delaware corporation (the Company ), and Victor Perlroth, M.D. (the Executive ).
RECITALS
WHEREAS , the Company desires to continue to employ the Executive, and the Executive desires to continue to be employed by the Company, for such purposes and upon the terms and conditions hereinafter provided; and
WHEREAS , the parties wish to establish the terms of the Executives continued employment with the Company and set out fully their respective rights, obligations and duties.
NOW, THEREFORE , in consideration of the promises and the terms and conditions set forth in this Agreement, the parties hereby agree as follows:
AGREEMENT
1. Employment by the Company .
(a) Title and Capacity . The Company and Executive hereby agree to continue the Executives employment with the Company, effective as of the Effective Date, under the terms set forth in this Agreement. The Executive will continue to serve as the Chairman and Chief Executive Officer of the Company, reporting to the Companys Board of Directors (the Board). During the Executives employment with the Company, the Executive will devote substantially all of Executives business time and attention to the business of the Company, except for vacation periods and reasonable periods of illness or other incapacities permitted by the Companys general employment policies, or as otherwise set forth herein.
(b) Duties and Location . The Executive shall perform such duties as are ordinary, customary and necessary in such role as carried out for a biopharmaceutical company and consistent with the Companys objectives to discover, develop, obtain approval, commercialize and sell its own pharmaceutical products, and to become registered to sell its securities to the public. The Executive shall perform any duties as are assigned to the Executive from time to time, consistent with the Bylaws of the Company and as required by the Board. The Company reserves the right to reasonably require the Executive to perform Executives duties at places other than its corporate headquarters from time to time, and to require reasonable business travel.
(c) Company Policies . The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company that are made available to Executive, except that when the terms of this Agreement differ from or are in conflict with such general employment policies or practices, this Agreement shall control.
2. Compensation and Benefits .
(a) Base Salary . The Company agrees to pay the Executive for services rendered an annual base salary of Three Hundred Ninety-Nine Thousand Two Hundred and Twenty-Eight Dollars ($399,228) (increasing to Five Hundred and Sixteen Thousand Dollars ($516,000) effective upon the IPO), subject to payroll withholding and deductions, and payable in accordance with Companys customary payroll practice (the Base Salary ). The Base Salary shall be reviewed periodically by the compensation committee of the Board; provided , however , that any such review will not necessarily result in an adjustment to the Base Salary. Any change in the Base Salary must be approved by the Board.
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(b) Targeted Incentive Bonus . The Executive is eligible to earn, in addition to the Base Salary and subject to the terms hereof and at the full discretion of the Board, a targeted incentive bonus of forty-five percent (45%) of Base Salary) (increasing to fifty percent (50%) of Base Salary effective upon the IPO), subject to all applicable withholdings and deductions (the Targeted Incentive Bonus ). Whether Executive earns a Targeted Incentive Bonus award shall be determined by the Board in its discretion, based on the Executives and the Companys performance against goals during the applicable fiscal year. The Targeted Incentive Bonus performance goals will be set by the Chief Executive Officer in conjunction with the Companys Board of Directors or its authorized committee (in either case, the Committee ) at the beginning of each fiscal year. Subject to the terms of this Agreement, the Executive will not earn any bonus if Executives employment terminates for any reason before the end of the fiscal year. Any Targeted Incentive Bonus, if earned, shall be payable no earlier than the first payroll period in the new fiscal year, but in no event later than the end of the first quarter following the applicable fiscal year.
(c) Equity . Executive will be eligible to receive Company equity awards pursuant to any plans or arrangements the Company may have in effect from time to time. The Committee will determine in its discretion whether Executive will be granted any Company equity awards and the terms of any Company equity award in accordance with the terms of any applicable plan or arrangement that may be in effect from time to time.
(d) Benefits . The Executive (and, where applicable, the Executives qualified dependents) will be eligible to participate in health insurance and other employee benefit plans and policies established by the Company for its executive team from time to time on substantially the same terms as are made available to other such employees of the Company generally. The Executives participation (and the participation of the Executives qualified dependents) in the Companys benefit plans and policies will be subject to the terms of the applicable plan documents and the Companys generally applied policies, and the Company in its sole discretion may from time to time adopt, modify, interpret or discontinue such plans or policies.
(e) Expenses . The Company will reimburse the Executive for all reasonable and necessary expenses incurred by the Executive in connection with the Executives discharge of the Companys business, in accordance with the applicable Company policy as may be amended from time to time.
(f) Termination of Benefits . Except as set forth in Section 3 or as otherwise specified herein or in any other agreement between the Executive and the Company, if the Executives employment is terminated by the Company for any reason, with or without Cause, or if the Executive resigns the Executives employment voluntarily, with or without Good Reason, no compensation or other payments will be paid or provided to the Executive for periods following the Termination Date (as defined below) when such a termination of employment is effective, provided that any rights the Executive may have under the Companys benefit plans shall be determined under the provisions of such plans. If the Executives employment terminates as a result of the Executives death or Disability, no compensation or payments will be made to the Executive or to the Executives estate, as the case may be, other than any Accrued Compensation (as defined below) and those benefits to which the Executive may otherwise be entitled under the benefit plans of the Company.
3. Compensation and Benefits Upon Termination of Employment . Upon termination of the Executives employment (such date of termination being referred to as the Termination Date ), the Company will pay the Executive the compensation and benefits as described in this Section 3 .
(a) General Benefits Upon Termination . The Company will pay the Executive, or Executives estate, as the case may be, all accrued but unpaid Base Salary, earned and awarded but unpaid Targeted Incentive Bonus compensation, approved but unpaid business expenses, and accrued but unused vacation (collectively, the Accrued Compensation ), if any.
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(b) Termination without Cause or for Good Reason . In the event that the Company terminates the Executives employment without Cause or, in the event the Executive terminates Executives employment for Good Reason: (i) the Executive shall be eligible to receive: (A) a lump sum payment equal to eighteen (18) months of Base Salary, subject to payroll withholding and deductions ( Severance Payment ), (B) a lump sum payment equal to the maximum Targeted Incentive Bonus, prorated for the portion of the fiscal year elapsed as of the Termination Date (or, if such termination occurs during the Corporate Transaction Period (as defined below), the payment shall be calculated without any proration, and by multiplying the maximum Targeted Incentive Bonus by one hundred fifty percent (150%)) ( Severance Bonus Amount ), and (C) the benefits set forth in Section 3(d) , and (ii) the Executive shall be entitled to acceleration of vesting of such portion of the Executives outstanding Company equity awards as would have vested in the twelve (12)-month period following the Termination Date had the Executive continued to be employed by the Company for such period (or if such termination occurs simultaneously with or within twenty-four (24) months after a Corporate Transaction, acceleration of vesting of one hundred percent (100%) of the unvested portion of such Company equity awards), provided , however that in each case the receipt of the Severance Payment, the Severance Bonus Amount, benefits and accelerated vesting is expressly contingent upon the Executives execution and delivery of a release and waiver of claims agreement drafted by and satisfactory to counsel for the Company (the Release ) executed and becoming effective within sixty (60) days following the Termination Date. The Severance Payment, Severance Bonus Amount, and benefits shall be paid or commence on the first payroll period following the date the Release becomes effective (the Payment Commencement Date ). The foregoing notwithstanding, if the 60 th day following the Termination Date occurs in the calendar year following the termination, then the Payment Commencement Date shall be no earlier than January 1st of such subsequent calendar year. The provision of payments and benefits pursuant to this Section shall be subject to the terms and conditions set forth on Exhibit A .
(c) Definitions .
(i) Corporate Transaction means any (A) consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization in which the members/shareholders of the Company prior to such consolidation, merger or reorganization shall own less than fifty percent (50%) of the voting equity of the continuing or surviving entity after such consolidation, merger or reorganization, (B) any transaction or series of related transactions to which the Company is a party, in which in excess of fifty percent (50%) of the Companys voting equity securities is transferred, except for bona fide sales of the Companys equity securities to investors for primarily fundraising purposes, or (C) a sale of substantially all of the assets of the Company.
(ii) Corporate Transaction Period means the period beginning three (3) months prior to a Corporate Transaction and ending twenty-four (24) months after such Corporate Transaction.
(iii) Cause means (A) Executives conviction of, including pleading guilty or nolo contendere to, any felony or any crime involving dishonesty; (B) Executives intentional participation in any fraud or act of dishonesty against the Company; (C) a material violation by Executive of any of the Companys written policies or other serious misconduct, in each case that results in or is reasonably likely to result in material harm to Company that is not cured within thirty (30) days following written notice of Cause from the Company provided that a cure is possible; (D) Executives willful and continued failure substantially to perform any of Executives job duties that is not cured within thirty (30) days following written notice of Cause from the Company; (E) conduct by Executive which, in the good faith and reasonable determination of
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the Board, demonstrates gross unfitness to serve that is not cured within thirty (30) days following written notice of Cause from the Company provided a cure is possible; or (F) Executives material breach of any agreement with the Company (or its subsidiaries or successors) that is not cured within thirty (30) days following written notice of such breach from the Company. In the event the Cause definition in this agreement differs from the Cause definition in the Plan, the definition in this Agreement shall control.
(iv) Good Reason means the occurrence of any one or more of the following events without the prior written consent of the Executive: (A) a material reduction in Base Salary or Targeted Incentive Bonus opportunity, or benefits, provided that any reduction in Base Salary (and any reduction in the dollar amount of the Executives Targeted Incentive Bonus opportunity resulting from such reduction in Base Salary) that is related to a cross-executive team base salary reduction shall not constitute Good Reason; (B) a material reduction in Executives title, duties, or responsibilities or change in reporting line; provided that a reassignment following a Corporate Transaction to a position that is substantially similar to the position held prior to the Corporate Transaction shall not constitute a material reduction in job responsibilities or duties; (C) a relocation of Executives primary work location that increases Executives one-way commute by more than fifty (50) miles; (D) failure of the successor company to assume obligations contained in any equity compensation agreement in place between Executive and the Company at the time of the Corporate Transaction; (F) any written directive given to Executive by the Board that is in conflict with Executives professional medical obligations or otherwise in violation of applicable law or regulation, in all cases, of which the Board has knowledge of such obligations or law or regulation prior to the issuance of such directive; or (G) the Companys material breach of any equity compensation agreement in place between Executive and the Company or this Agreement; provided, however, that no such event or condition shall constitute Good Reason unless (i) the Executive gives the Company a written notice of termination for Good Reason not more than ninety (90) days after the initial existence of the condition, (ii) the grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice, and (iii) the Termination Date occurs within ninety (90) days following the Companys receipt of such notice.
(v) IPO means the effective date of the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Companys Common Stock.
(d) Benefits Continuation .
(i) COBRA . If the Executives employment is terminated pursuant to Section 3(b) and provided that the Executive is eligible for and elects to continue receiving group health and dental insurance pursuant to the federal COBRA law, 29 U.S.C. § 1161 et seq. , the Company will, for an eighteen (18)-month period following the Payment Commencement Date (the Benefits Continuation Period ), continue to pay the share of the premium for such coverage that is paid by the Company for active and similarly situated employees who receive the same type of coverage. The remaining balance of any premium costs shall be paid by the Executive on a monthly basis for as long as, and to the extent that, the Executive remains eligible for COBRA continuation.
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(ii) Special Cash Payments . If the Company determines, in its sole discretion, that it cannot pay its share of the COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the Companys share of the applicable COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the Benefits Continuation Period.
(iii) Alternative Eligibility . The above notwithstanding, in the event the Executive becomes eligible for health insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for health insurance coverage. Similarly, in the event the Executive becomes eligible for dental insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for dental insurance benefits. The Executive hereby represents that Executive will notify the Company in writing within three (3) days of becoming eligible for health or dental insurance benefits from a new employer during the Benefits Continuation Period.
(e) Death . This Agreement shall automatically terminate upon the death of the Executive and all monetary obligations of Company under Section 3 of this Agreement shall be prorated to the Termination Date and paid to the Executives estate.
(f) Disability . The Company may terminate the Executives employment for Disability if the Executive is unable, due to a physical or mental impairment, to perform the essential functions of the Executives job position, with or without reasonable accommodation, for a period of ninety (90) consecutive calendar days, or for at least sixty-five (65) business days within a twelve (12)-month period, provided that the Company shall terminate for Disability only in compliance with the Family Medical Leave Act, and the Americans with Disabilities Act. Any dispute regarding the existence of Disability shall be resolved by a panel of three (3) physicians, which shall consist of one physician selected by the Company, one physician selected by the Executive, and one physician selected by such other two physicians. A termination of employment pursuant to this Section 3(f) shall constitute a termination for Cause.
4. Acceleration of Vesting Following a Corporate Transaction . If on the date twenty-four (24) months immediately following the consummation of any Corporate Transaction the Executive is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then one hundred percent (100%) of the Executives outstanding Company equity awards that remain unvested shall vest, effective as of the second anniversary of the Corporate Transaction subject to the execution of a Release and it becoming effective.
5. At-Will Employment . The Executive will continue to be an at-will employee of the Company, which means the employment relationship can be terminated by either the Executive or the Company for any reason, at any time, with or without prior notice and with or without Cause or Good Reason. The Company makes no promise that the Executives employment will continue for any particular period of time, nor is there any promise that it will be terminated only under particular circumstances. No raise or bonus, if any, shall alter the Executives status as an at-will employee or create any implied contract of employment. Discussion of possible or potential benefits in future years is not an express or implied promise of continued employment. No manager, supervisor or officer of the Company has the authority to change the Executives status as an at-will employee. The at-will nature of the employment relationship with the Executive can only be altered by a written agreement signed by the Executive and an authorized member of the Board.
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6. Director and Officer Liability Insurance; Indemnification . During the Executives employment hereunder, the Executive shall be entitled to the same indemnification and director and officer liability insurance as the Company and its affiliates maintain for other corporate officers.
7. Employee Confidential Information and Inventions Assignment Agreement . The Executive shall execute and deliver the Companys standard Employee Confidential Information and Inventions Assignment Agreement set forth as Exhibit B hereto.
8. Attention to Duties; Conflict of Interest . Except with the prior written consent of the Company, the Executive will not while employed by the Company undertake or engage in any other employment, occupation or business enterprise, other than (i) ones in which the Executive is a passive investor or (ii) ones that do not materially interfere with the performance of Executives duties hereunder. The Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of Executives duties hereunder. The Company has consented to the Executives pursuit of the external obligations set forth in Exhibit C hereto, provided , however, that such activities do not materially interfere with the performance of the Executives duties under this Agreement, are not competitive with the Companys business, and do not cause a conflict of interest (any such issue an External Conflict ). The existence of an External Conflict shall be determined in the sole discretion of the Board, based upon a reasonable discussion of the potential issue with the Executive. Upon written notice of the Companys withdrawal of consent to external activities because of an External Conflict, the Executive shall cease the external activities either immediately (in the case of competition or conflict of interest), or within a reasonable period not longer than thirty (30) days, otherwise further pursuit of such external activities shall be deemed Cause for termination under Section 3(c)(iii)(F). Other than those set forth in Exhibit C , the Executive represents that the Executive has no other outstanding commitments inconsistent with any of the terms of this Agreement or the services to be rendered to the Company. While employed by the Company, the Executive shall not, directly or indirectly, whether as a partner, employee, creditor, shareholder, or otherwise, promote, participate or engage in any activity or other business competitive with the Companys business. The Executive shall not invest in any company or business which competes in any manner with the Company, except as a passive investor, and for so long as Executives direct holdings in any one such corporation shall not in the aggregate constitute more than two and a half percent (2.5%) of the voting stock of such corporation.
9. General Provisions .
(a) Severability . If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect.
(b) No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
(c) Assignment . This Agreement and all rights hereunder are personal to the Executive and may not be transferred or assigned by the Executive at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets; provided , however , that any such assignee assumes the Companys obligations hereunder.
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(d) Withholding . All sums payable to the Executive hereunder shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
(e) Entire Agreement . This Agreement, including the exhibits and agreements referred to herein (which are deemed incorporated by reference herein) constitute the entire and only agreement and understanding between the parties governing the terms and conditions of employment of the Executive with the Company and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings governing the terms and conditions of the Executives employment by the Company. In the event of any conflict between the terms of any other agreement between the Executive and the Company entered into prior to the Effective Date, the terms of this Agreement shall control.
(f) Amendment . This Agreement may be amended, modified, superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto.
(g) Headings . The headings contained in this Agreement are for reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female references, and the word or is used in the inclusive sense.
(h) Notices . Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including, personal delivery by overnight courier, facsimile transmission, or the third day after mailing by first class mail) to the Company at its primary office location and to the Executive at Executives address as listed on the Company payroll (which address may be changed by written notice).
(i) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
(j) Governing Law, Forum Selection . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California without giving effect to the principles of conflict of laws. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a state or federal court located in Santa Clara County, California, and the Company and the Executive each consents to the jurisdiction of such a court.
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IN WITNESS WHEREOF , the Company and the Executive have executed this Executive Employment Agreement as of the date first above written.
K ODIAK S CIENCES I NC . | ||
By: | /s/ Felix Baker | |
Felix Baker, Ph.D. Board member |
V ICTOR P ERLROTH , M.D.: |
/s/ Victor Perlroth |
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EXHIBIT A
PAYMENTS SUBJECT TO SECTION 409A
1. Subject to this Exhibit A , any severance payments and benefits that may be due under the Agreement shall begin only upon the date of the Executives separation from service (determined as set forth below) which occurs on or after the termination of the Executives employment. The following rules shall apply with respect to distribution of the severance payments and benefits, if any, to be provided to the Executive under the Agreement, as applicable:
(a) It is intended that each installment of the severance payments and benefits under the Agreement provided under shall be treated as a separate payment for purposes of Section 409A. Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(b) If, as of the date of the Executives separation from service from the Company, the Executive is not a specified employee (within the meaning of Section 409A), then each installment of the severance payments or benefits shall be made on the dates and terms set forth in the Agreement.
(c) If, as of the date of the Executives separation from service from the Company, the Executive is a specified employee (within the meaning of Section 409A), then:
(i) Each installment of the severance payments and benefits due under the Agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the Executives separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and shall be paid at the time set forth in the Agreement; and
(ii) Each installment of the severance payments and benefits due under the Agreement that is not described in this Exhibit A , Section 1(c)(i) and that would, absent this subsection, be paid within the six-month period following the Executives separation from service from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, the Executives death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following the Executives separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executives second taxable year following the taxable year in which the separation from service occurs.
2. The determination of whether and when the Executives separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Exhibit A, Section 2, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
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3. The Company makes no representation or warranty and shall have no liability to the Executive or to any other person if any of the provisions of the Agreement (including this Exhibit) are determined to constitute deferred compensation subject to Section 409A but that do not satisfy an exemption from, or the conditions of, that section.
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EXHIBIT B
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Kodiak Sciences Inc., its subsidiaries, parents, affiliates, successors and assigns (together Company ), and the compensation paid to me now and during my employment with Company, I hereby enter into this Employee Confidential Information and Invention Assignment Agreement (the Agreement ) and agree as follows:
1. |
C ONFIDENTIAL I NFORMATION P ROTECTIONS . |
1.1 Recognition of Companys Rights; Nondisclosure; Exceptions. I understand and acknowledge that my employment by Company creates a relationship of confidence and trust with respect to Companys Confidential Information (as defined below) and that Company has a protectable interest therein.
(a) At all times during and after my employment, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Companys Confidential Information, except as such disclosure, use or publication may be required in connection with my work for Company, or unless an officer of Company expressly authorizes such disclosure. I will obtain Companys written approval before publishing or submitting for publication any material (written, oral, or otherwise) that discloses and/or incorporates any Confidential Information. I hereby assign to Company any rights I may have or acquire in such Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns. I will take all reasonable precautions to prevent the inadvertent accidental disclosure of Confidential Information. The foregoing, or anything to the contrary in this Agreement or any other agreement between the Company and me, notwithstanding:
(b) Pursuant to 18 U.S.C. Section 1833(b), I shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that: (1) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
(c) It is understood that, at all such times, I am free to use information which was known to me prior to employment with Company or which is generally known in the trade or industry through no breach of this Agreement or other act or omission by me.
(d) Nothing in this Agreement shall limit my right to discuss my employment or report possible violations of law or regulation with the Equal Employment Opportunity Commission, United States Department of Labor, the National Labor Relations Board, the Securities and Exchange Commission, or other federal government agency or similar state or local agency or to discuss the terms and conditions of my employment with others to the extent expressly permitted by Section 7 of the National Labor Relations Act or to the extent that such disclosure is protected under the applicable provisions of law or regulation, including but not limited to whistleblower statutes or other similar provisions that protect such disclosure.
1.2 Confidential Information. The term Confidential Information shall mean any and all confidential knowledge, data or information of Company. By way of illustration but not limitation, Confidential Information includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, software in source or object code versions, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques and any other proprietary technology and all Intellectual Property Rights therein (collectively, Inventions ); (b) information regarding research, development, assay components, biological materials, cell lines, clinical data, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, margins, discounts, credit terms, pricing and billing policies, quoting procedures, methods of obtaining business, forecasts, future plans and potential strategies, financial projections and business strategies, operational plans, financing and capital-raising plans, activities and agreements, internal services and operational manuals, methods of conducting Company business, suppliers and supplier information, and purchasing; (c) information regarding customers and potential customers of Company, including customer lists, names, representatives, their needs or desires with respect to the types of products or services offered by Company, proposals, bids, contracts and their contents and parties, the type and
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quantity of products and services provided or sought to be provided to customers and potential customers of Company and other non-public information relating to customers and potential customers; (d) information regarding any of Companys business partners and their services, including names; representatives, proposals, bids, contracts and their contents and parties, the type and quantity of products and services received by Company, and other non-public information relating to business partners; (e) information regarding personnel, employee lists, compensation, and employee skills; and (f) any other non-public information which a competitor of Company could use to the competitive disadvantage of Company.
1.3 Third Party Information. I understand, in addition, that Company has received and in the future will receive from third parties their confidential and/or proprietary knowledge, data or information ( Third Party Information ) subject to a duty on Companys part to maintain the confidentiality of such information and to use it only for certain limited purposes. During my employment and thereafter, I will hold Third Party Information in confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, except in connection with my work for Company, Third Party Information unless expressly authorized by an officer of Company in writing.
1.4 Term of Nondisclosure Restrictions. I understand that there is no temporal limitation on my obligation not to use or disclose Confidential Information and Third Party Information, as provided in this Section 1. If a temporal limitation on my obligation not to use or disclose such information is required under applicable law, and the Agreement or its restriction(s) cannot otherwise be enforced, I agree and Company agrees that the two (2)-year period after the date my employment ends will be the temporal limitation applicable to the contested restriction, provided, however, that this sentence will not apply to trade secrets protected without temporal limitation under applicable law. I understand that nothing in this Agreement prevents me from engaging in protected activity, as described in Section 13 below.
1.5 No Improper Use of Information of Prior Employers and Others. During my employment by Company, I will not improperly use or disclose confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of Company any unpublished documents or any property belonging to any former employer
or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person.
2. |
A SSIGNMENTS OF I NVENTIONS . |
2.1 Definitions. As used in this Agreement, the term Intellectual Property Rights means all trade secrets, Copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country; the term Copyright means the exclusive legal right to reproduce, perform, display, distribute and make derivative works of a work of authorship (as a literary, musical, or artistic work) recognized by the laws of any jurisdiction or country; and the term Moral Rights means all paternity, integrity, disclosure, withdrawal, special and any other similar rights recognized by the laws of any jurisdiction or country.
2.2 Excluded Inventions and Other Inventions. Attached hereto as Exhibit 1 is a list describing all existing Inventions, if any, that may relate to Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the commencement of my employment with, and which are not to be assigned to, Company ( Excluded Inventions ). If no such list is attached, I represent and agree that it is because I have no rights in any existing Inventions that may relate to Companys business or actual or demonstrably anticipated research or development. For purposes of this Agreement, Other Inventions means Inventions in which I have or may have an interest, as of the commencement of my employment or thereafter, other than Company Inventions (defined below) and Excluded Inventions. I acknowledge and agree that if I use any Excluded Inventions or any Other Inventions in the scope of my employment, or if I include any Excluded Inventions or Other Inventions in any product or service of Company, or if my rights in any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise be required for, the exercise by Company of any rights assigned to Company under this Agreement, I will immediately so notify Company in writing. Unless Company and I agree otherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to Company, in such circumstances (whether or not I give Company notice as required above), a non-exclusive, perpetual, transferable, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in
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any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Excluded Inventions and Other Inventions. To the extent that any third parties have rights in any such Other Inventions, I hereby represent and warrant that such third party or parties have validly and irrevocably granted to me the right to grant the license stated above.
2.3 Assignment of Company Inventions. Inventions assigned to Company, or to a third party as directed by Company pursuant to Section 2.6, are referred to in this Agreement as Company Inventions . Subject to Section 2.4 (Unassigned or Nonassignable Inventions) and except for Excluded Inventions set forth in Exhibit 1 and Other Inventions, I hereby assign, grant and convey to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company. To the extent required by applicable Copyright laws, I agree to assign in the future (when any copyrightable Inventions are first fixed in a tangible medium of expression) my Copyright rights in and to such Inventions. Any assignment of Company Inventions (and all Intellectual Property Rights with respect thereto) hereunder includes an assignment of all Moral Rights. To the extent such Moral Rights cannot be assigned to Company and to the extent the following is allowed by the laws in any country where Moral Rights exist, I hereby unconditionally and irrevocably waive the enforcement of such Moral Rights, and all claims and causes of action of any kind against Company or related to Companys customers, with respect to such rights. I further acknowledge and agree that neither my successors-in-interest nor legal heirs retain any Moral Rights in any Company Inventions (and any Intellectual Property Rights with respect thereto).
2.4 Unassigned or Nonassignable Inventions. I recognize that this Agreement will not be deemed to require assignment of any Invention that is covered under California Labor Code section 2870(a), provided that that nothing herein shall forbid or restrict the right of Company to provide for full title to certain patents and Inventions to be in the United States, as required by contracts between the Company and the United States or any of its agencies.
2.5 Obligation to Keep Company Informed. During the period of my employment and for one (1) year after termination of my employment, I will promptly and fully disclose to Company in writing all
Inventions authored, conceived, or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to Company all patent applications filed by me or on my behalf within one (1) year after termination of employment. At the time of each such disclosure, I will advise Company in writing of any Inventions that I believe fully qualify for protection under the provisions of California Labor Code sections 2780, 2782 ; and I will at that time provide to Company in writing all evidence necessary to substantiate that belief. Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to Company pursuant to this Agreement relating to Inventions that qualify fully for protection under California Labor Code sections 2780, 2782. I will preserve the confidentiality of any Invention that does not fully qualify for protection under California Labor Code sections 2780, 2782.
2.6 Government or Third Party. I agree that, as directed by Company, I will assign to a third party, including without limitation the United States, all my right, title, and interest in and to any particular Company Invention.
2.7 Ownership of Work Product.
(a) I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by Copyright are works made for hire, pursuant to United States Copyright Act (17 U.S.C., Section 101). I agree that Company will exclusively own all work product that is made by me (solely or jointly with others) within the scope of my employment, and I hereby irrevocably and unconditionally assign to Company all right, title, and interest worldwide in and to such work product. I understand and agree that I have no right to publish on, submit for publishing, or use for any publication any work product protected by this Section, except as necessary to perform services for Company.
2.8 Enforcement of Intellectual Property Rights and Assistance. I will assist Company in every proper way to obtain, and from time to time enforce, United States and foreign Intellectual Property Rights and Moral Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Intellectual Property Rights and the assignment thereof. In addition, I will
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execute, verify and deliver assignments of such Intellectual Property Rights to Company or its designee, including the United States or any third party designated by Company. My obligation to assist Company with respect to Intellectual Property Rights relating to such Company Inventions in any and all countries will continue beyond the termination of my employment, but Company will compensate me at a reasonable rate after my termination for the time actually spent by me at Companys request on such assistance. In the event Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in this paragraph, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Intellectual Property Rights assigned under this Agreement to Company.
2.9 Incorporation of Software Code. I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU General Public License or Lesser General Public License or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company except in strict compliance with Companys policies regarding the use of such software.
3. R ECORDS . I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by Company) of all Confidential Information developed by me and all Company Inventions made by me during the period of my employment at Company, which records will be available to and remain the sole property of Company at all times.
4. D UTY OF L OYALTY D URING E MPLOYMENT . I agree that during the period of my employment by Company I will not, without Companys express written consent, directly or indirectly engage in any employment or business activity which is directly or indirectly competitive with, or would otherwise conflict with, my employment by Company.
5. N O S OLICITATION OF E MPLOYEES , C ONSULTANTS , C ONTRACTORS . I agree that during the period of my employment and for the one (1) year period after the date my employment ends for any reason, including but not limited to voluntary termination by me or involuntary termination by Company, I will not, as an officer, director, employee, consultant, owner, partner, or in any other capacity, either directly or through others, except on behalf of Company, solicit, induce, encourage, or participate in soliciting, inducing or encouraging any person known to me to be an employee, consultant, or independent contractor of Company to terminate his or her relationship with Company, even if I did not initiate the discussion or seek out the contact.
6. |
R EASONABLENESS OF R ESTRICTIONS . |
6.1 I agree that I have read this entire Agreement and understand it. I agree that this Agreement does not prevent me from earning a living or pursuing my career. I agree that the restrictions contained in this Agreement are reasonable, proper, and necessitated by Companys legitimate business interests. I represent and agree that I am entering into this Agreement freely and with knowledge of its contents with the intent to be bound by the Agreement and the restrictions contained in it.
6.2 In the event that a court finds this Agreement, or any of its restrictions, to be ambiguous, unenforceable, or invalid, Company and I agree that the court will read the Agreement as a whole and interpret the restriction(s) at issue to be enforceable and valid to the maximum extent allowed by law.
6.3 If the court declines to enforce this Agreement in the manner provided in subsection 6.2, Company and I agree that this Agreement will be automatically modified to provide Company with the maximum protection of its business interests allowed by law and I agree to be bound by this Agreement as modified.
7. N O C ONFLICTING A GREEMENT OR O BLIGATION . I represent that my performance of all the terms of this Agreement and as an employee of Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict with this Agreement.
8. R ETURN O F C OMPANY P ROPERTY . When I leave the employ of Company, I will deliver to Company any and all drawings, notes, memoranda, specifications, devices, formulas and documents, together with all copies thereof, and any other material
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containing or disclosing any Company Inventions, Third Party Information or Confidential Information of Company. I agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to Company. In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Confidential Information, I agree to provide Company with a computer-useable copy of all such Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed. I further agree that any property situated on Companys premises and owned by Company, including any storage media, filing cabinets or other work areas, is subject to inspection by Companys personnel at any time with or without notice. Prior to leaving, I will cooperate with Company in attending an exit interview and completing and signing Companys termination statement if required to do so by Company.
9. |
L EGAL AND E QUITABLE R EMEDIES . |
9.1 I agree that it may be impossible to assess the damages caused by my violation of this Agreement or any of its terms. I agree that any threatened or actual violation of this Agreement or any of its terms will constitute immediate and irreparable injury to Company, and Company will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that Company may have for a breach or threatened breach of this Agreement.
9.2 In the event Company enforces this Agreement through a court order, I agree that the restrictions of Section 5 will remain in effect for a period of twelve (12) months from the effective date of the Order enforcing the Agreement.
10. N OTICES . Any notices required or permitted under this Agreement will be given to Company at its headquarters location at the time notice is given, labeled Attention Chief Executive Officer, and to me at my address as listed on Company payroll, or at such other address as Company or I may designate by written notice to the other. Notice will be effective upon receipt or refusal of delivery. If delivered by certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, notice will be
considered to have been given on the delivery date reflected by the courier or express mail service receipt.
11. |
P UBLICATION OF T HIS A GREEMENT TO S UBSEQUENT E MPLOYER OR B USINESS A SSOCIATES OF E MPLOYEE . |
11.1 If I am offered employment or the opportunity to enter into any business venture as owner, partner, consultant or other capacity while the restrictions described in Section 5 of this Agreement are in effect I agree to inform my potential employer, partner, co-owner and/or others involved in managing the business with which I have an opportunity to be associated of my obligations under this Agreement and also agree to provide such person or persons with a copy of this Agreement.
11.2 I agree to inform Company of all employment and business ventures which I enter into while the restrictions described in Section 5 of this Agreement are in effect and I also authorize Company to provide copies of this Agreement to my employer, partner, co-owner and/or others involved in managing the business with which I am employed or associated and to make such persons aware of my obligations under this Agreement.
12. |
G ENERAL P ROVISIONS . |
12.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of California as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction and venue of the state and federal courts located in Santa Clara County, California for any lawsuit filed there against me by Company arising from or related to this Agreement.
12.2 Severability. In case any one or more of the provisions, subsections, or sentences contained in this Agreement will, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect the other provisions of this Agreement, and this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained in this Agreement. If moreover, any one or more of the provisions contained in this Agreement will for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it will be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it will then appear.
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12.3 Successors and Assigns. This Agreement is for my benefit and the benefit of Company, its successors, assigns, parent corporations, subsidiaries, affiliates, and purchasers, and will be binding upon my heirs, executors, administrators and other legal representatives.
12.4 Survival. This Agreement shall survive the termination of my employment, regardless of the reason, and the assignment of this Agreement by Company to any successor in interest or other assignee.
12.5 Employment At-Will. I agree and understand that nothing in this Agreement will change my at-will employment status or confer any right with respect to continuation of employment by Company, nor will it interfere in any way with my right or Companys right to terminate my employment at any time, with or without cause or advance notice.
12.6 Waiver. No waiver by Company of any breach of this Agreement will be a waiver of any preceding or succeeding breach. No waiver by Company of any right under this Agreement will be construed as a waiver of any other right. Company will not be required to give notice to enforce strict adherence to all terms of this Agreement.
12.7 Export. I agree not to export, reexport, or transfer, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, in violation of the United States export laws or regulations.
12.8 Advice of Counsel. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT WILL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS AGREEMENT.
12.9 Entire Agreement. The obligations pursuant to Sections 1 and 2 (except Subsection 2.4 and 2.7) of this Agreement will apply to any time during which I was previously engaged, or am in the future engaged, by Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter of this Agreement and supersedes and merges all prior discussions between us ; provided, however, prior to the execution of this Agreement, if Company and I were parties to any agreement regarding the
subject matter hereof, that agreement will be superseded by this Agreement prospectively only. No modification of or amendment to this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
13. P ROTECTED A CTIVITY N OT P ROHIBITED . I understand that nothing in this Agreement limits or prohibits me from filing a charge or complaint with, or otherwise communicating or cooperating with or participating in any investigation or proceeding that may be conducted by, any federal, state or local government agency or commission, including the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, and the National Labor Relations Board ( Government Agencies ), including disclosing documents or other information as permitted by law, without giving notice to, or receiving authorization from, the Company. Notwithstanding, in making any such disclosures or communications, I agree to take all reasonable precautions to prevent any unauthorized use or disclosure of any information that may constitute Confidential Information to any parties other than the Government Agencies. I further understand that I am not permitted to disclose the Companys attorney-client privileged communications or attorney work product. In addition, I hereby acknowledge that the Company has provided me with notice in compliance with the Defend Trade Secrets Act of 2016 regarding immunity from liability for limited disclosures of trade secrets. The full text of the notice is attached in Exhibit 2 .
[Signatures to follow on next page]
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This Agreement will be effective as of September 6, 2018.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS . I HAVE COMPLETELY FILLED OUT E XHIBIT 1 TO THIS A GREEMENT .
/s/ John Borgeson |
9/21/2018 |
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John Borgeson |
Date | |||
SUP and CFO |
||||
A CCEPTED AND A GREED T O : |
By: | /s/ Victor Perlroth |
9/21/2018 |
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Victor Perlroth, M.D. | Date |
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E XHIBIT 1
E XCLUDED I NVENTIONS
TO: | Kodiak Sciences Inc. (Company) | |
FROM: | Victor Perlroth, M.D. | |
DATE: | September 6, 2018 | |
SUBJECT: | Excluded Inventions ( See Section 2.2 of the Agreement) |
I. |
Disclosable Excluded Inventions . Except as listed in Section II below, the following is a complete list describing all existing Inventions, if any, that may relate to Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the commencement of my employment with, and which are not to be assigned to Company: |
☒ |
No inventions or improvements. |
☐ |
See below: |
☐ |
Additional sheets attached. |
II. |
Confidential Excluded Inventions . Due to a prior confidentiality agreement, I cannot complete the disclosure under Section I above with respect to inventions or improvements generally listed below, the intellectual property rights and duty of confidentiality with respect to which I owe to the following party(ies): |
Invention or Improvement | Party(ies) | Relationship |
1. | ||||||||||||
2. | ||||||||||||
3. |
☐ |
Additional sheets attached. |
III. |
Limited Exclusion Notification . |
NOTICE REQUIRED BY CALIFORNIA LABOR CODE SECTION 2872:
This is to notify you in accordance with Section 2872 of the California Labor Code, as set forth in Attachment 1, that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Companys equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a. |
Relate at the time of conception or reduction to practice to Companys business, or actual or demonstrably anticipated research or development; or |
b. |
Result from any work performed by you for Company. |
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To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.
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Attachment 1
California Labor Code Provisions
Section 2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employers equipment, supplies, facilities, or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the invention to the employers business, or actual or demonstrably anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
Section 2871. No employer shall require a provision made void and unenforceable by Section 2870 as a condition of employment or continued employment. Nothing in this article shall be construed to forbid or restrict the right of an employer to provide in contracts of employment for disclosure, provided that any such disclosures be received in confidence, of all of the employees inventions made solely or jointly with others during the term of his or her employment, a review process by the employer to determine such issues as may arise, and for full title to certain patents and inventions to be in the United States, as required by contracts between the employer and the United States or any of its agencies.
Section 2872. If an employment agreement entered into after January 1, 1980, contains a provision requiring the employee to assign or offer to assign any of his or her rights in any invention to his or her employer, the employer must also, at the time the agreement is made, provide a written notification to the employee that the agreement does not apply to an invention which qualifies fully under the provisions of Section 2870. In any suit or action arising thereunder, the burden of proof shall be on the employee claiming the benefits of its provisions.
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E XHIBIT 2
S ECTION 7 OF THE D EFEND T RADE S ECRETS A CT OF 2016
. . . An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that(A) is made(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. . . . An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual(A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.
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EXHIBIT C
PERMITTED EXTERNAL ACTIVITIES
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Exhibit 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
This E XECUTIVE E MPLOYMENT A GREEMENT (the Agreement ), is entered into as of September 6, 2018 (the Effective Date ), by and between Kodiak Sciences Inc., a Delaware corporation (the Company ), and John A. Borgeson (the Executive ).
RECITALS
WHEREAS , the Company desires to continue to employ the Executive, and the Executive desires to continue to be employed by the Company, for such purposes and upon the terms and conditions hereinafter provided; and
WHEREAS , the parties wish to establish the terms of the Executives continued employment with the Company and set out fully their respective rights, obligations and duties.
NOW, THEREFORE , in consideration of the promises and the terms and conditions set forth in this Agreement, the parties hereby agree as follows:
AGREEMENT
1. Employment by the Company .
(a) Title and Capacity . The Company and Executive hereby agree to continue the Executives employment with the Company, effective as of the Effective Date, under the terms set forth in this Agreement. The Executive will continue to serve as the Senior Vice President and Chief Financial Officer of the Company, reporting to the Companys Chief Executive Officer. During the Executives employment with the Company, the Executive will devote substantially all of Executives business time and attention to the business of the Company, except for vacation periods and reasonable periods of illness or other incapacities permitted by the Companys general employment policies, or as otherwise set forth herein.
(b) Duties and Location . The Executive shall perform such duties as are ordinary, customary and necessary in such role as carried out for a biopharmaceutical company and consistent with the Companys objectives to discover, develop, obtain approval, commercialize and sell its own pharmaceutical products, and to become registered to sell its securities to the public. The Executive shall perform any duties as are assigned to the Executive from time to time, consistent with the Bylaws of the Company and as required by the Chief Executive Officer. The Company reserves the right to reasonably require the Executive to perform Executives duties at places other than its corporate headquarters from time to time, and to require reasonable business travel.
(c) Company Policies . The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company that are made available to Executive, except that when the terms of this Agreement differ from or are in conflict with such general employment policies or practices, this Agreement shall control.
2. Compensation and Benefits .
(a) Base Salary . The Company agrees to pay the Executive for services rendered an annual base salary of Three Hundred Six Thousand One Hundred and Sixty-Eight Dollars ($306,168) (increasing to Three Hundred and Ninety Three Thousand Dollars ($393,000) effective upon the IPO), subject to payroll withholding and deductions, and payable in accordance with Companys customary payroll practice (the Base Salary ). The Base Salary shall be reviewed periodically by the Companys Chief Executive Officer; provided , however , that any such review will not necessarily result in an adjustment to the Base Salary. Any change in the Base Salary must be approved by the Chief Executive Officer.
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(b) Targeted Incentive Bonus . The Executive is eligible to earn, in addition to the Base Salary and subject to the terms hereof and at the full discretion of the Chief Executive Officer, a targeted incentive bonus of thirty-five percent (35%) of Base Salary) (increasing to forty percent (40%) of Base Salary effective upon the IPO), subject to all applicable withholdings and deductions (the Targeted Incentive Bonus ). Whether Executive earns a Targeted Incentive Bonus award shall be determined by the Companys Chief Executive Officer in its discretion, based on the Executives and the Companys performance against goals during the applicable fiscal year. The Targeted Incentive Bonus performance goals will be set by the Chief Executive Officer in conjunction with the Companys Board of Directors or its authorized committee (in either case, the Board ) at the beginning of each fiscal year. Subject to the terms of this Agreement, the Executive will not earn any bonus if Executives employment terminates for any reason before the end of the fiscal year. Any Targeted Incentive Bonus, if earned, shall be payable no earlier than the first payroll period in the new fiscal year, but in no event later than the end of the first quarter following the applicable fiscal year.
(c) Equity . Executive will be eligible to receive Company equity awards pursuant to any plans or arrangements the Company may have in effect from time to time. The Board will determine in its discretion whether Executive will be granted any Company equity awards and the terms of any Company equity award in accordance with the terms of any applicable plan or arrangement that may be in effect from time to time.
(d) Benefits . The Executive (and, where applicable, the Executives qualified dependents) will be eligible to participate in health insurance and other employee benefit plans and policies established by the Company for its executive team from time to time on substantially the same terms as are made available to other such employees of the Company generally. The Executives participation (and the participation of the Executives qualified dependents) in the Companys benefit plans and policies will be subject to the terms of the applicable plan documents and the Companys generally applied policies, and the Company in its sole discretion may from time to time adopt, modify, interpret or discontinue such plans or policies.
(e) Expenses . The Company will reimburse the Executive for all reasonable and necessary expenses incurred by the Executive in connection with the Executives discharge of the Companys business, in accordance with the applicable Company policy as may be amended from time to time.
(f) Termination of Benefits . Except as set forth in Section 3 or as otherwise specified herein or in any other agreement between the Executive and the Company, if the Executives employment is terminated by the Company for any reason, with or without Cause, or if the Executive resigns the Executives employment voluntarily, with or without Good Reason, no compensation or other payments will be paid or provided to the Executive for periods following the Termination Date (as defined below) when such a termination of employment is effective, provided that any rights the Executive may have under the Companys benefit plans shall be determined under the provisions of such plans. If the Executives employment terminates as a result of the Executives death or Disability, no compensation or payments will be made to the Executive or to the Executives estate, as the case may be, other than any Accrued Compensation (as defined below) and those benefits to which the Executive may otherwise be entitled under the benefit plans of the Company.
3. Compensation and Benefits Upon Termination of Employment . Upon termination of the Executives employment (such date of termination being referred to as the Termination Date ), the Company will pay the Executive the compensation and benefits as described in this Section 3 .
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(a) General Benefits Upon Termination . The Company will pay the Executive, or Executives estate, as the case may be, all accrued but unpaid Base Salary, earned and awarded but unpaid Targeted Incentive Bonus compensation, approved but unpaid business expenses, and accrued but unused vacation (collectively, the Accrued Compensation ), if any.
(b) Termination without Cause or for Good Reason . In the event that the Company terminates the Executives employment without Cause or, in the event the Executive terminates Executives employment for Good Reason: (i) the Executive shall be eligible to receive: (A) a lump sum payment equal to nine (9) months of Base Salary (or if such termination occurs during the Corporate Transaction Period (as defined below), twelve (12) months of Base Salary), subject to payroll withholding and deductions ( Severance Payment ), (B) a lump sum payment equal to the maximum Targeted Incentive Bonus, prorated for the portion of the fiscal year elapsed as of the Termination Date (or, if such termination occurs during the Corporate Transaction Period, the payment shall be calculated without any proration) ( Severance Bonus Amount ), and (C) the benefits set forth in Section 3(d) , and (ii) the Executive shall be entitled to acceleration of vesting of such portion of the Executives outstanding Company equity awards as would have vested in the twelve (12)-month period following the Termination Date had the Executive continued to be employed by the Company for such period (or if such termination occurs simultaneously with or within twenty-four (24) months after a Corporate Transaction, acceleration of vesting of one hundred percent (100%) of the unvested portion of such Company equity awards), provided , however that in each case the receipt of the Severance Payment, the Severance Bonus Amount, benefits and accelerated vesting is expressly contingent upon the Executives execution and delivery of a release and waiver of claims agreement drafted by and satisfactory to counsel for the Company (the Release ) executed and becoming effective within sixty (60) days following the Termination Date. The Severance Payment, Severance Bonus Amount, and benefits shall be paid or commence on the first payroll period following the date the Release becomes effective (the Payment Commencement Date ). The foregoing notwithstanding, if the 60 th day following the Termination Date occurs in the calendar year following the termination, then the Payment Commencement Date shall be no earlier than January 1st of such subsequent calendar year. The provision of payments and benefits pursuant to this Section shall be subject to the terms and conditions set forth on Exhibit A .
(c) Definitions .
(i) Corporate Transaction means any (A) consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization in which the members/shareholders of the Company prior to such consolidation, merger or reorganization shall own less than fifty percent (50%) of the voting equity of the continuing or surviving entity after such consolidation, merger or reorganization, (B) any transaction or series of related transactions to which the Company is a party, in which in excess of fifty percent (50%) of the Companys voting equity securities is transferred, except for bona fide sales of the Companys equity securities to investors for primarily fundraising purposes, or (C) a sale of substantially all of the assets of the Company.
(ii) Corporate Transaction Period means the period beginning three (3) months prior to a Corporate Transaction and ending twenty-four (24) months after such Corporate Transaction.
(iii) Cause means (A) Executives conviction of, including pleading guilty or nolo contendere to, any felony or any crime involving dishonesty; (B) Executives intentional participation in any fraud or act of dishonesty against the Company; (C) a material violation by Executive of any of the Companys written policies or other serious misconduct, in each case that results in or is reasonably likely to result in material harm to Company that is
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not cured within thirty (30) days following written notice of Cause from the Company provided that a cure is possible; (D) Executives willful and continued failure substantially to perform any of Executives job duties that is not cured within thirty (30) days following written notice of Cause from the Company; (E) conduct by Executive which, in the good faith and reasonable determination of the Board, demonstrates gross unfitness to serve that is not cured within thirty (30) days following written notice of Cause from the Company provided a cure is possible; or (F) Executives material breach of any agreement with the Company (or its subsidiaries or successors) that is not cured within thirty (30) days following written notice of such breach from the Company. In the event the Cause definition in this agreement differs from the Cause definition in the Plan, the definition in this Agreement shall control.
(iv) Good Reason means the occurrence of any one or more of the following events without the prior written consent of the Executive: (A) a material reduction in Base Salary or Targeted Incentive Bonus opportunity, or benefits, provided that any reduction in Base Salary (and any reduction in the dollar amount of the Executives Targeted Incentive Bonus opportunity resulting from such reduction in Base Salary) that is related to a cross-executive team base salary reduction shall not constitute Good Reason; (B) a material reduction in Executives title, duties, or responsibilities or change in reporting line; provided that a reassignment following a Corporate Transaction to a position that is substantially similar to the position held prior to the Corporate Transaction shall not constitute a material reduction in job responsibilities or duties; (C) a relocation of Executives primary work location that increases Executives one-way commute by more than fifty (50) miles; (D) failure of the successor company to assume obligations contained in any equity compensation agreement in place between Executive and the Company at the time of the Corporate Transaction; (F) any written directive given to Executive by the Chief Executive Officer or the Board that is in conflict with Executives professional obligations or otherwise in violation of applicable law or regulation, in all cases, of which the Chief Executive Officer or the Board has knowledge of such obligations or law or regulation prior to the issuance of such directive; or (G) the Companys material breach of any equity compensation agreement in place between Executive and the Company or this Agreement; provided, however, that no such event or condition shall constitute Good Reason unless (i) the Executive gives the Company a written notice of termination for Good Reason not more than ninety (90) days after the initial existence of the condition, (ii) the grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice, and (iii) the Termination Date occurs within ninety (90) days following the Companys receipt of such notice.
(v) IPO means the effective date of the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Companys Common Stock.
(d) Benefits Continuation .
(i) COBRA . If the Executives employment is terminated pursuant to Section 3(b) and provided that the Executive is eligible for and elects to continue receiving group health and dental insurance pursuant to the federal COBRA law, 29 U.S.C. § 1161 et seq. , the Company will, for a nine (9)-month period (or if such termination occurs during the Corporate Transaction Period, a twelve (12)-month period) following the Payment Commencement Date (the Benefits Continuation Period ), continue to pay the
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share of the premium for such coverage that is paid by the Company for active and similarly situated employees who receive the same type of coverage. The remaining balance of any premium costs shall be paid by the Executive on a monthly basis for as long as, and to the extent that, the Executive remains eligible for COBRA continuation.
(ii) Special Cash Payments . If the Company determines, in its sole discretion, that it cannot pay its share of the COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the Companys share of the applicable COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the Benefits Continuation Period.
(iii) Alternative Eligibility . The above notwithstanding, in the event the Executive becomes eligible for health insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for health insurance coverage. Similarly, in the event the Executive becomes eligible for dental insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for dental insurance benefits. The Executive hereby represents that Executive will notify the Company in writing within three (3) days of becoming eligible for health or dental insurance benefits from a new employer during the Benefits Continuation Period.
(e) Death . This Agreement shall automatically terminate upon the death of the Executive and all monetary obligations of Company under Section 3 of this Agreement shall be prorated to the Termination Date and paid to the Executives estate.
(f) Disability . The Company may terminate the Executives employment for Disability if the Executive is unable, due to a physical or mental impairment, to perform the essential functions of the Executives job position, with or without reasonable accommodation, for a period of ninety (90) consecutive calendar days, or for at least sixty-five (65) business days within a twelve (12)-month period, provided that the Company shall terminate for Disability only in compliance with the Family Medical Leave Act, and the Americans with Disabilities Act. Any dispute regarding the existence of Disability shall be resolved by a panel of three (3) physicians, which shall consist of one physician selected by the Company, one physician selected by the Executive, and one physician selected by such other two physicians. A termination of employment pursuant to this Section 3(f) shall constitute a termination for Cause.
4. Acceleration of Vesting Following a Corporate Transaction . If on the date twenty-four (24) months immediately following the consummation of any Corporate Transaction the Executive is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then one hundred percent (100%) of the Executives outstanding Company equity awards that remain unvested shall vest, effective as of the second anniversary of the Corporate Transaction subject to the execution of a Release and it becoming effective.
5. At-Will Employment . The Executive will continue to be an at-will employee of the Company, which means the employment relationship can be terminated by either the Executive or the Company for any reason, at any time, with or without prior notice and with or without Cause or Good Reason. The Company makes no promise that the Executives employment will continue for any particular period of time, nor is there any promise that it will be terminated only under particular circumstances. No raise or bonus, if any, shall alter the Executives
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status as an at-will employee or create any implied contract of employment. Discussion of possible or potential benefits in future years is not an express or implied promise of continued employment. No manager, supervisor or officer of the Company has the authority to change the Executives status as an at-will employee. The at-will nature of the employment relationship with the Executive can only be altered by a written agreement signed by the Executive and an authorized member of the Chief Executive Officer.
6. Director and Officer Liability Insurance; Indemnification . During the Executives employment hereunder, the Executive shall be entitled to the same indemnification and director and officer liability insurance as the Company and its affiliates maintain for other corporate officers.
7. Employee Confidential Information and Inventions Assignment Agreement . The Executive shall execute and deliver the Companys standard Employee Confidential Information and Inventions Assignment Agreement set forth as Exhibit B hereto.
8. Attention to Duties; Conflict of Interest . Except with the prior written consent of the Company, the Executive will not while employed by the Company undertake or engage in any other employment, occupation or business enterprise, other than ones in which the Executive is a passive investor. The Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of Executives duties hereunder. The Company has consented to the Executives pursuit of the external obligations set forth in Exhibit C hereto, provided , however, that such activities do not materially interfere with the performance of the Executives duties under this Agreement, are not competitive with the Companys business, and do not cause a conflict of interest (any such issue an External Conflict ). The existence of an External Conflict shall be determined in the sole discretion of the Chief Executive Officer, based upon a reasonable discussion of the potential issue with the Executive. Upon written notice of the Companys withdrawal of consent to external activities because of an External Conflict, the Executive shall cease the external activities either immediately (in the case of competition or conflict of interest), or within a reasonable period not longer than thirty (30) days, otherwise further pursuit of such external activities shall be deemed Cause for termination under Section 3(c)(iii)(F). Other than those set forth in Exhibit C , the Executive represents that the Executive has no other outstanding commitments inconsistent with any of the terms of this Agreement or the services to be rendered to the Company. While employed by the Company, the Executive shall not, directly or indirectly, whether as a partner, employee, creditor, shareholder, or otherwise, promote, participate or engage in any activity or other business competitive with the Companys business. The Executive shall not invest in any company or business which competes in any manner with the Company, except as a passive investor, and for so long as Executives direct holdings in any one such corporation shall not in the aggregate constitute more than two and a half percent (2.5%) of the voting stock of such corporation.
9. General Provisions .
(a) Severability . If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect.
(b) No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
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(c) Assignment . This Agreement and all rights hereunder are personal to the Executive and may not be transferred or assigned by the Executive at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets; provided , however , that any such assignee assumes the Companys obligations hereunder.
(d) Withholding . All sums payable to the Executive hereunder shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
(e) Entire Agreement . This Agreement, including the exhibits and agreements referred to herein (which are deemed incorporated by reference herein) constitute the entire and only agreement and understanding between the parties governing the terms and conditions of employment of the Executive with the Company and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings governing the terms and conditions of the Executives employment by the Company. In the event of any conflict between the terms of any other agreement between the Executive and the Company entered into prior to the Effective Date, the terms of this Agreement shall control.
(f) Amendment . This Agreement may be amended, modified, superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto.
(g) Headings . The headings contained in this Agreement are for reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female references, and the word or is used in the inclusive sense.
(h) Notices . Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including, personal delivery by overnight courier, facsimile transmission, or the third day after mailing by first class mail) to the Company at its primary office location and to the Executive at Executives address as listed on the Company payroll (which address may be changed by written notice).
(i) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
(j) Governing Law, Forum Selection . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California without giving effect to the principles of conflict of laws. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a state or federal court located in Santa Clara County, California, and the Company and the Executive each consents to the jurisdiction of such a court.
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IN WITNESS WHEREOF , the Company and the Executive have executed this Executive Employment Agreement as of the date first above written.
K ODIAK S CIENCES I NC . | ||
By: | /s/ Victor Perlroth | |
Victor Perlroth, M.D. | ||
Chief Executive Officer |
J OHN A. B ORGESON : |
/s/ John A. Borgeson |
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EXHIBIT A
PAYMENTS SUBJECT TO SECTION 409A
1. Subject to this Exhibit A , any severance payments and benefits that may be due under the Agreement shall begin only upon the date of the Executives separation from service (determined as set forth below) which occurs on or after the termination of the Executives employment. The following rules shall apply with respect to distribution of the severance payments and benefits, if any, to be provided to the Executive under the Agreement, as applicable:
(a) It is intended that each installment of the severance payments and benefits under the Agreement provided under shall be treated as a separate payment for purposes of Section 409A. Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(b) If, as of the date of the Executives separation from service from the Company, the Executive is not a specified employee (within the meaning of Section 409A), then each installment of the severance payments or benefits shall be made on the dates and terms set forth in the Agreement.
(c) If, as of the date of the Executives separation from service from the Company, the Executive is a specified employee (within the meaning of Section 409A), then:
(i) Each installment of the severance payments and benefits due under the Agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the Executives separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and shall be paid at the time set forth in the Agreement; and
(ii) Each installment of the severance payments and benefits due under the Agreement that is not described in this Exhibit A , Section 1(c)(i) and that would, absent this subsection, be paid within the six-month period following the Executives separation from service from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, the Executives death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following the Executives separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executives second taxable year following the taxable year in which the separation from service occurs.
2. The determination of whether and when the Executives separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Exhibit A, Section 2, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
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3. The Company makes no representation or warranty and shall have no liability to the Executive or to any other person if any of the provisions of the Agreement (including this Exhibit) are determined to constitute deferred compensation subject to Section 409A but that do not satisfy an exemption from, or the conditions of, that section.
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EXHIBIT B
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Kodiak Sciences Inc., its subsidiaries, parents, affiliates, successors and assigns (together Company ), and the compensation paid to me now and during my employment with Company, I hereby enter into this Employee Confidential Information and Invention Assignment Agreement (the Agreement ) and agree as follows:
1. |
C ONFIDENTIAL I NFORMATION P ROTECTIONS . |
1.1 Recognition of Companys Rights; Nondisclosure; Exceptions. I understand and acknowledge that my employment by Company creates a relationship of confidence and trust with respect to Companys Confidential Information (as defined below) and that Company has a protectable interest therein.
(a) At all times during and after my employment, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Companys Confidential Information, except as such disclosure, use or publication may be required in connection with my work for Company, or unless an officer of Company expressly authorizes such disclosure. I will obtain Companys written approval before publishing or submitting for publication any material (written, oral, or otherwise) that discloses and/or incorporates any Confidential Information. I hereby assign to Company any rights I may have or acquire in such Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns. I will take all reasonable precautions to prevent the inadvertent accidental disclosure of Confidential Information. The foregoing, or anything to the contrary in this Agreement or any other agreement between the Company and me, notwithstanding:
(b) Pursuant to 18 U.S.C. Section 1833(b), I shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that: (1) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
(c) It is understood that, at all such times, I am free to use information which was known to me prior to employment with Company or which is generally known in the trade or industry through no breach of this Agreement or other act or omission by me.
(d) Nothing in this Agreement shall limit my right to discuss my employment or report possible violations of law or regulation with the Equal Employment Opportunity Commission, United States Department of Labor, the National Labor Relations Board, the Securities and Exchange Commission, or other federal government agency or similar state or local agency or to discuss the terms and conditions of my employment with others to the extent expressly permitted by Section 7 of the National Labor Relations Act or to the extent that such disclosure is protected under the applicable provisions of law or regulation, including but not limited to whistleblower statutes or other similar provisions that protect such disclosure.
1.2 Confidential Information. The term Confidential Information shall mean any and all confidential knowledge, data or information of Company. By way of illustration but not limitation, Confidential Information includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, software in source or object code versions, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques and any other proprietary technology and all Intellectual Property Rights therein (collectively, Inventions ); (b) information regarding research, development, assay components, biological materials, cell lines, clinical data, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, margins, discounts, credit terms, pricing and billing policies, quoting procedures, methods of obtaining business, forecasts, future plans and potential strategies, financial projections and business strategies, operational plans, financing and capital-raising plans, activities and agreements, internal services and operational manuals, methods of conducting Company business, suppliers and supplier information, and purchasing; (c) information regarding customers and potential customers of Company, including customer lists, names, representatives, their needs or desires with respect to the types of products or services offered by Company, proposals, bids, contracts and their contents and parties, the type and
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quantity of products and services provided or sought to be provided to customers and potential customers of Company and other non-public information relating to customers and potential customers; (d) information regarding any of Companys business partners and their services, including names; representatives, proposals, bids, contracts and their contents and parties, the type and quantity of products and services received by Company, and other non-public information relating to business partners; (e) information regarding personnel, employee lists, compensation, and employee skills; and (f) any other non-public information which a competitor of Company could use to the competitive disadvantage of Company.
1.3 Third Party Information. I understand, in addition, that Company has received and in the future will receive from third parties their confidential and/or proprietary knowledge, data or information ( Third Party Information ) subject to a duty on Companys part to maintain the confidentiality of such information and to use it only for certain limited purposes. During my employment and thereafter, I will hold Third Party Information in confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, except in connection with my work for Company, Third Party Information unless expressly authorized by an officer of Company in writing.
1.4 Term of Nondisclosure Restrictions. I understand that there is no temporal limitation on my obligation not to use or disclose Confidential Information and Third Party Information, as provided in this Section 1. If a temporal limitation on my obligation not to use or disclose such information is required under applicable law, and the Agreement or its restriction(s) cannot otherwise be enforced, I agree and Company agrees that the two (2)-year period after the date my employment ends will be the temporal limitation applicable to the contested restriction, provided, however, that this sentence will not apply to trade secrets protected without temporal limitation under applicable law. I understand that nothing in this Agreement prevents me from engaging in protected activity, as described in Section 13 below.
1.5 No Improper Use of Information of Prior Employers and Others. During my employment by Company, I will not improperly use or disclose confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person.
2. |
A SSIGNMENTS OF I NVENTIONS . |
2.1 Definitions. As used in this Agreement, the term Intellectual Property Rights means all trade secrets, Copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country; the term Copyright means the exclusive legal right to reproduce, perform, display, distribute and make derivative works of a work of authorship (as a literary, musical, or artistic work) recognized by the laws of any jurisdiction or country; and the term Moral Rights means all paternity, integrity, disclosure, withdrawal, special and any other similar rights recognized by the laws of any jurisdiction or country.
2.2 Excluded Inventions and Other Inventions. Attached hereto as Exhibit 1 is a list describing all existing Inventions, if any, that may relate to Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the commencement of my employment with, and which are not to be assigned to, Company ( Excluded Inventions ). If no such list is attached, I represent and agree that it is because I have no rights in any existing Inventions that may relate to Companys business or actual or demonstrably anticipated research or development. For purposes of this Agreement, Other Inventions means Inventions in which I have or may have an interest, as of the commencement of my employment or thereafter, other than Company Inventions (defined below) and Excluded Inventions. I acknowledge and agree that if I use any Excluded Inventions or any Other Inventions in the scope of my employment, or if I include any Excluded Inventions or Other Inventions in any product or service of Company, or if my rights in any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise be required for, the exercise by Company of any rights assigned to Company under this Agreement, I will immediately so notify Company in writing. Unless Company and I agree otherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to Company, in such circumstances (whether or not I give Company notice as required above), a non-exclusive, perpetual, transferable, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in
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any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Excluded Inventions and Other Inventions. To the extent that any third parties have rights in any such Other Inventions, I hereby represent and warrant that such third party or parties have validly and irrevocably granted to me the right to grant the license stated above.
2.3 Assignment of Company Inventions. Inventions assigned to Company, or to a third party as directed by Company pursuant to Section 2.6, are referred to in this Agreement as Company Inventions . Subject to Section 2.4 (Unassigned or Nonassignable Inventions) and except for Excluded Inventions set forth in Exhibit 1 and Other Inventions, I hereby assign, grant and convey to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company. To the extent required by applicable Copyright laws, I agree to assign in the future (when any copyrightable Inventions are first fixed in a tangible medium of expression) my Copyright rights in and to such Inventions. Any assignment of Company Inventions (and all Intellectual Property Rights with respect thereto) hereunder includes an assignment of all Moral Rights. To the extent such Moral Rights cannot be assigned to Company and to the extent the following is allowed by the laws in any country where Moral Rights exist, I hereby unconditionally and irrevocably waive the enforcement of such Moral Rights, and all claims and causes of action of any kind against Company or related to Companys customers, with respect to such rights. I further acknowledge and agree that neither my successors-in-interest nor legal heirs retain any Moral Rights in any Company Inventions (and any Intellectual Property Rights with respect thereto).
2.4 Unassigned or Nonassignable Inventions. I recognize that this Agreement will not be deemed to require assignment of any Invention that is covered under California Labor Code section 2870(a), provided that that nothing herein shall forbid or restrict the right of Company to provide for full title to certain patents and Inventions to be in the United States, as required by contracts between the Company and the United States or any of its agencies.
2.5 Obligation to Keep Company Informed. During the period of my employment and for one (1) year after termination of my employment, I will promptly and fully disclose to Company in writing all Inventions authored, conceived, or
reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to Company all patent applications filed by me or on my behalf within one (1) year after termination of employment. At the time of each such disclosure, I will advise Company in writing of any Inventions that I believe fully qualify for protection under the provisions of California Labor Code sections 2780, 2782 ; and I will at that time provide to Company in writing all evidence necessary to substantiate that belief. Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to Company pursuant to this Agreement relating to Inventions that qualify fully for protection under California Labor Code sections 2780, 2782. I will preserve the confidentiality of any Invention that does not fully qualify for protection under California Labor Code sections 2780, 2782.
2.6 Government or Third Party. I agree that, as directed by Company, I will assign to a third party, including without limitation the United States, all my right, title, and interest in and to any particular Company Invention.
2.7 Ownership of Work Product.
(a) I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by Copyright are works made for hire, pursuant to United States Copyright Act (17 U.S.C., Section 101). I agree that Company will exclusively own all work product that is made by me (solely or jointly with others) within the scope of my employment, and I hereby irrevocably and unconditionally assign to Company all right, title, and interest worldwide in and to such work product. I understand and agree that I have no right to publish on, submit for publishing, or use for any publication any work product protected by this Section, except as necessary to perform services for Company.
2.8 Enforcement of Intellectual Property Rights and Assistance. I will assist Company in every proper way to obtain, and from time to time enforce, United States and foreign Intellectual Property Rights and Moral Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Intellectual Property Rights and the assignment thereof. In addition, I will
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execute, verify and deliver assignments of such Intellectual Property Rights to Company or its designee, including the United States or any third party designated by Company. My obligation to assist Company with respect to Intellectual Property Rights relating to such Company Inventions in any and all countries will continue beyond the termination of my employment, but Company will compensate me at a reasonable rate after my termination for the time actually spent by me at Companys request on such assistance. In the event Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in this paragraph, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Intellectual Property Rights assigned under this Agreement to Company.
2.9 Incorporation of Software Code. I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU General Public License or Lesser General Public License or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company except in strict compliance with Companys policies regarding the use of such software.
3. R ECORDS . I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by Company) of all Confidential Information developed by me and all Company Inventions made by me during the period of my employment at Company, which records will be available to and remain the sole property of Company at all times.
4. D UTY OF L OYALTY D URING E MPLOYMENT . I agree that during the period of my employment by Company I will not, without Companys express written consent, directly or indirectly engage in any employment or business activity which is directly or indirectly competitive with, or would otherwise conflict with, my employment by Company.
5. N O S OLICITATION OF E MPLOYEES , C ONSULTANTS , C ONTRACTORS . I agree that during the period of my employment and for the one (1) year period after the date my employment ends for any reason, including but not limited to voluntary termination by me or involuntary termination by Company, I will not, as an officer, director, employee, consultant, owner, partner, or in any other capacity, either directly or through others, except on behalf of Company, solicit, induce, encourage, or participate in soliciting, inducing or encouraging any person known to me to be an employee, consultant, or independent contractor of Company to terminate his or her relationship with Company, even if I did not initiate the discussion or seek out the contact.
6. |
R EASONABLENESS OF R ESTRICTIONS . |
6.1 I agree that I have read this entire Agreement and understand it. I agree that this Agreement does not prevent me from earning a living or pursuing my career. I agree that the restrictions contained in this Agreement are reasonable, proper, and necessitated by Companys legitimate business interests. I represent and agree that I am entering into this Agreement freely and with knowledge of its contents with the intent to be bound by the Agreement and the restrictions contained in it.
6.2 In the event that a court finds this Agreement, or any of its restrictions, to be ambiguous, unenforceable, or invalid, Company and I agree that the court will read the Agreement as a whole and interpret the restriction(s) at issue to be enforceable and valid to the maximum extent allowed by law.
6.3 If the court declines to enforce this Agreement in the manner provided in subsection 6.2, Company and I agree that this Agreement will be automatically modified to provide Company with the maximum protection of its business interests allowed by law and I agree to be bound by this Agreement as modified.
7. N O C ONFLICTING A GREEMENT OR O BLIGATION . I represent that my performance of all the terms of this Agreement and as an employee of Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict with this Agreement.
8. R ETURN O F C OMPANY P ROPERTY . When I leave the employ of Company, I will deliver to Company any and all drawings, notes, memoranda, specifications, devices, formulas and documents, together with all copies thereof, and any other material
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containing or disclosing any Company Inventions, Third Party Information or Confidential Information of Company. I agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to Company. In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Confidential Information, I agree to provide Company with a computer-useable copy of all such Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed. I further agree that any property situated on Companys premises and owned by Company, including any storage media, filing cabinets or other work areas, is subject to inspection by Companys personnel at any time with or without notice. Prior to leaving, I will cooperate with Company in attending an exit interview and completing and signing Companys termination statement if required to do so by Company.
9. |
L EGAL AND E QUITABLE R EMEDIES . |
9.1 I agree that it may be impossible to assess the damages caused by my violation of this Agreement or any of its terms. I agree that any threatened or actual violation of this Agreement or any of its terms will constitute immediate and irreparable injury to Company, and Company will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that Company may have for a breach or threatened breach of this Agreement.
9.2 In the event Company enforces this Agreement through a court order, I agree that the restrictions of Section 5 will remain in effect for a period of twelve (12) months from the effective date of the Order enforcing the Agreement.
10. N OTICES . Any notices required or permitted under this Agreement will be given to Company at its headquarters location at the time notice is given, labeled Attention Chief Executive Officer, and to me at my address as listed on Company payroll, or at such other address as Company or I may designate by written notice to the other. Notice will be effective upon receipt or refusal of delivery. If delivered by certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, notice will be considered to have been given on
the delivery date reflected by the courier or express mail service receipt.
11. |
P UBLICATION OF T HIS A GREEMENT TO S UBSEQUENT E MPLOYER OR B USINESS A SSOCIATES OF E MPLOYEE . |
11.1 If I am offered employment or the opportunity to enter into any business venture as owner, partner, consultant or other capacity while the restrictions described in Section 5 of this Agreement are in effect I agree to inform my potential employer, partner, co-owner and/or others involved in managing the business with which I have an opportunity to be associated of my obligations under this Agreement and also agree to provide such person or persons with a copy of this Agreement.
11.2 I agree to inform Company of all employment and business ventures which I enter into while the restrictions described in Section 5 of this Agreement are in effect and I also authorize Company to provide copies of this Agreement to my employer, partner, co-owner and/or others involved in managing the business with which I am employed or associated and to make such persons aware of my obligations under this Agreement.
12. |
G ENERAL P ROVISIONS . |
12.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of California as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction and venue of the state and federal courts located in Santa Clara County, California for any lawsuit filed there against me by Company arising from or related to this Agreement.
12.2 Severability. In case any one or more of the provisions, subsections, or sentences contained in this Agreement will, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect the other provisions of this Agreement, and this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained in this Agreement. If moreover, any one or more of the provisions contained in this Agreement will for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it will be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it will then appear.
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12.3 Successors and Assigns. This Agreement is for my benefit and the benefit of Company, its successors, assigns, parent corporations, subsidiaries, affiliates, and purchasers, and will be binding upon my heirs, executors, administrators and other legal representatives.
12.4 Survival. This Agreement shall survive the termination of my employment, regardless of the reason, and the assignment of this Agreement by Company to any successor in interest or other assignee.
12.5 Employment At-Will. I agree and understand that nothing in this Agreement will change my at-will employment status or confer any right with respect to continuation of employment by Company, nor will it interfere in any way with my right or Companys right to terminate my employment at any time, with or without cause or advance notice.
12.6 Waiver. No waiver by Company of any breach of this Agreement will be a waiver of any preceding or succeeding breach. No waiver by Company of any right under this Agreement will be construed as a waiver of any other right. Company will not be required to give notice to enforce strict adherence to all terms of this Agreement.
12.7 Export. I agree not to export, reexport, or transfer, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, in violation of the United States export laws or regulations.
12.8 Advice of Counsel. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT WILL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS AGREEMENT.
12.9 Entire Agreement. The obligations pursuant to Sections 1 and 2 (except Subsection 2.4 and 2.7) of this Agreement will apply to any time during which I was
previously engaged, or am in the future engaged, by Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter of this Agreement and supersedes and merges all prior discussions between us ; provided, however, prior to the execution of this Agreement, if Company and I were parties to any agreement regarding the subject matter hereof, that agreement will be superseded by this Agreement prospectively only. No modification of or amendment to this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
13. P ROTECTED A CTIVITY N OT P ROHIBITED . I understand that nothing in this Agreement limits or prohibits me from filing a charge or complaint with, or otherwise communicating or cooperating with or participating in any investigation or proceeding that may be conducted by, any federal, state or local government agency or commission, including the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, and the National Labor Relations Board ( Government Agencies ), including disclosing documents or other information as permitted by law, without giving notice to, or receiving authorization from, the Company. Notwithstanding, in making any such disclosures or communications, I agree to take all reasonable precautions to prevent any unauthorized use or disclosure of any information that may constitute Confidential Information to any parties other than the Government Agencies. I further understand that I am not permitted to disclose the Companys attorney-client privileged communications or attorney work product. In addition, I hereby acknowledge that the Company has provided me with notice in compliance with the Defend Trade Secrets Act of 2016 regarding immunity from liability for limited disclosures of trade secrets. The full text of the notice is attached in Exhibit 2 .
[Signatures to follow on next page]
C ALIFORNIA
B-6
This Agreement will be effective as of September 6, 2018.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS . I HAVE COMPLETELY FILLED OUT E XHIBIT 1 TO THIS A GREEMENT .
/s/ Victor Perlroth |
9/20/2018 |
|||||
Victor Perlroth, M.D. | Date | |||||
Chief Executive Officer | ||||||
A CCEPTED AND A GREED T O : | ||||||
By: | /s/ John A. Borgeson |
9/20/2018 |
||||
John A. Borgeson | Date |
C ALIFORNIA
B-7
E XHIBIT 1
E XCLUDED I NVENTIONS
TO: | Kodiak Sciences Inc. (Company) | |
FROM: | John A. Borgeson | |
DATE: | September 6, 2018 | |
SUBJECT: | Excluded Inventions ( See Section 2.2 of the Agreement) |
I. |
Disclosable Excluded Inventions . Except as listed in Section II below, the following is a complete list describing all existing Inventions, if any, that may relate to Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the commencement of my employment with, and which are not to be assigned to Company: |
☒ |
No inventions or improvements. |
☐ |
See below: |
☐ |
Additional sheets attached. |
II. |
Confidential Excluded Inventions . Due to a prior confidentiality agreement, I cannot complete the disclosure under Section I above with respect to inventions or improvements generally listed below, the intellectual property rights and duty of confidentiality with respect to which I owe to the following party(ies): |
Invention or Improvement | Party(ies) | Relationship | ||||||
1.________________________________ | ||||||||
2.________________________________ | ||||||||
3.________________________________ |
☐ |
Additional sheets attached. |
III. |
Limited Exclusion Notification. |
NOTICE REQUIRED BY CALIFORNIA LABOR CODE SECTION 2872:
This is to notify you in accordance with Section 2872 of the California Labor Code, as set forth in Attachment 1, that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Companys equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a. |
Relate at the time of conception or reduction to practice to Companys business, or actual or demonstrably anticipated research or development; or |
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b. |
Result from any work performed by you for Company. |
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.
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Attachment 1
California Labor Code Provisions
Section 2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employers equipment, supplies, facilities, or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the invention to the employers business, or actual or demonstrably anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
Section 2871. No employer shall require a provision made void and unenforceable by Section 2870 as a condition of employment or continued employment. Nothing in this article shall be construed to forbid or restrict the right of an employer to provide in contracts of employment for disclosure, provided that any such disclosures be received in confidence, of all of the employees inventions made solely or jointly with others during the term of his or her employment, a review process by the employer to determine such issues as may arise, and for full title to certain patents and inventions to be in the United States, as required by contracts between the employer and the United States or any of its agencies.
Section 2872. If an employment agreement entered into after January 1, 1980, contains a provision requiring the employee to assign or offer to assign any of his or her rights in any invention to his or her employer, the employer must also, at the time the agreement is made, provide a written notification to the employee that the agreement does not apply to an invention which qualifies fully under the provisions of Section 2870. In any suit or action arising thereunder, the burden of proof shall be on the employee claiming the benefits of its provisions.
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E XHIBIT 2
S ECTION 7 OF THE D EFEND T RADE S ECRETS A CT OF 2016
. . . An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that(A) is made(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. . . . An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual(A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.
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EXHIBIT C
PERMITTED EXTERNAL ACTIVITIES
1. |
ALX Oncology Inc. (formerly Alexo Therapeutics Inc.): Continue to serve as an outside advisor during the time period and subject to the limitations set forth in Section 8 of the Executive Employment Agreement. |
C-1
Exhibit 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
This E XECUTIVE E MPLOYMENT A GREEMENT (the Agreement ), is entered into as of September 6, 2018, by and between Kodiak Sciences Inc., a Delaware corporation (the Company ), and Jason Ehrlich, M.D., Ph.D. (the Executive ). This Executive Employment Agreement amends and restates the Executive Employment Agreement by and between the Company and the Executive dated August 26, 2018 (the Effective Date ).
RECITALS
WHEREAS , the Company desires to employ the Executive, and the Executive desires to be employed by the Company, for such purposes and upon the terms and conditions hereinafter provided; and
WHEREAS , the parties wish to establish the terms of the Executives employment with the Company and set out fully their respective rights, obligations and duties.
NOW, THEREFORE , in consideration of the promises and the terms and conditions set forth in this Agreement, the parties hereby agree as follows:
AGREEMENT
1. Employment by the Company .
(a) Title and Capacity . The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment with the Company, effective as of the Start Date, under the terms set forth in this Agreement. The Executive will serve in an executive capacity as the Chief Medical Officer and Chief Development Officer of the Company, reporting to the Companys Chief Executive Officer. During the Executives employment with the Company, the Executive will devote substantially all of Executives business time and attention to the business of the Company, except for vacation periods and reasonable periods of illness or other incapacities permitted by the Companys general employment policies, or as otherwise set forth herein.
(b) Duties and Location . The Executive shall perform such duties as are ordinary, customary and necessary in such role as carried out for a biopharmaceutical company and consistent with the Companys objectives to discover, develop, obtain approval, commercialize and sell its own pharmaceutical products, and to become registered to sell its securities to the public. The Executive shall perform any duties as are assigned to the Executive from time to time, consistent with the Bylaws of the Company and as required by the Chief Executive Officer of the Company. The Executive shall be entitled to work from Austin, Texas subject to travel to Executives primary office location in Palo Alto, California through the third (3 rd ) anniversary of the Effective Date, and thereafter by mutual agreement of the parties. The Company reserves the right to reasonably require the Executive to perform Executives duties at places other than its corporate headquarters from time to time, and to require reasonable business travel.
(c) Company Policies . The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company that are made available to Executive, except that when the terms of this Agreement differ from or are in conflict with such general employment policies or practices, this Agreement shall control.
(d) Start Date . Executives anticipated date for commencement of employment with the Company is September 1, 2018 or another mutually agreed upon date.
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2. Compensation and Benefits .
(a) Base Salary . The Company agrees to pay the Executive for services rendered an annual base salary of Four Hundred Forty Thousand Dollars ($440,000), subject to payroll withholding and deductions, and payable in accordance with Companys customary payroll practice (the Base Salary ). The Base Salary shall be reviewed periodically by the Companys Chief Executive Officer; provided , however , that any such review will not necessarily result in an adjustment to the Base Salary. Any change in the Base Salary must be approved by the Chief Executive Officer.
(b) Targeted Incentive Bonus . The Executive is eligible to earn, in addition to the Base Salary and subject to the terms hereof and at the full discretion of the Chief Executive Officer, a targeted incentive bonus of forty percent (40%) of Base Salary, subject to all applicable withholdings and deductions (the Targeted Incentive Bonus ). Whether Executive earns a Targeted Incentive Bonus award shall be determined by the Chief Executive Officer in its discretion, based on the Executives and the Companys performance against goals during the applicable fiscal year. The Targeted Incentive Bonus performance goals will be set by the Chief Executive Officer in conjunction with the Companys Board of Directors or its authorized committee (in either case, the Board ) at the beginning of each fiscal year. Subject to the terms of this Agreement, the Executive will not earn any bonus if Executives employment terminates for any reason before the end of the fiscal year. For 2018, Executives Target Incentive Bonus shall be pro-rated based on the number of days during which Executive is employed with the Company through December 31, 2018; otherwise, no prorated bonus can be earned. Any Targeted Incentive Bonus, if earned, shall be payable no earlier than the first payroll period in the new fiscal year, but in no event later than the end of the first quarter following the applicable fiscal year.
(c) Equity .
(i) Option . Subject to the approval of the Board, immediately following the Start Date, the Company shall grant Executive a stock option (the Option ) under the Companys then-current equity plan (the Plan ) to purchase 425,000 shares of Common Stock of the Company ( Shares ) at the fair market value as determined by the Board as of the date of grant. The Option will be governed in full by the terms and conditions of the Plan and the Executives individual Stock Option Agreement. Subject to the limitations set forth below, the Option will vest as to 25% of the Shares subject to the Option on the first anniversary of the Effective Date and monthly over the next thirty-six (36) months, during the Executives continuous service with the Company in accordance with the Plan and subject to the remaining terms and conditions of this Agreement.
(ii) Restricted Stock Unit Award . Subject to the approval of the Board, on the S-8 Filing Date, the Company shall grant Executive an award of restricted stock units (the RSU Award ) under the Plan covering a number of Shares equal to (x) $600,000 divided by (y) the IPO Price, rounded down to the nearest whole Share, effective as of the Registration Date. The RSU Award will be governed in full by the terms and conditions of the Plan and the Executives individual Restricted Stock Unit Agreement. Subject to the limitations set forth below, the RSU Award will vest 50% of the Shares on the first anniversary of the grant date with the remainder vesting equally in biannual installments over the following one (1) year, during the Executives continuous service with the Company in accordance with the Plan.
(d) Retention Bonus . The Company agrees to pay the Executive a one-time cash retention bonus of Two Hundred Thousand Dollars ($200,000) (the Retention Bonus ), subject to payroll withholding and deductions, and payable on the first payroll date of the Company on or following the Effective Date. If, before the second (2 nd ) anniversary of the Effective Date, the Executives employment with the Company is terminated either (i) by the Company for Cause or due to the Executives Disability (as such terms are defined below) or (ii) by the Executive without Good Reason (as defined below), the Executive agrees to repay to the Company within thirty (30) days after the Termination Date (as defined below) an amount in cash equal to (A) the
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gross amount of the Retention Bonus multiplied by (B) a fraction (1) the numerator of which is (x) twenty-four (24) minus (y) the number of fully completed months of employment between the Effective Date and the Termination Date and (2) the denominator of which is twenty-four (24). For the avoidance of doubt, Executives termination for death shall not require repayment of the Retention Bonus.
(e) Housing and Travel Allowance . The Company will provide the Executive with an allowance of up to Ten Thousand Dollars ($10,000), less applicable withholdings, per month for the first thirty-six (36) months following the Start Date for the Executives housing and travel expenses incurred while he is employed with the Company ( Housing and Travel Allowance ). Such Housing and Travel Allowance is being provided for Executives travel and housing requirements associated with his need to travel to and from his personal residence in Austin, Texas to the Companys Palo Alto offices. Executive must provide substantiation of expenses to the Company within thirty (30) days following the date the expense is incurred, and the Company will pay or otherwise reimburse Executive no later than thirty (30) days following the date the substantiation is provided to the Company. All amounts payable under this paragraph will be grossed up for applicable taxes subject to the terms of the Companys expense reimbursement policy.
(f) Benefits . The Executive (and, where applicable, the Executives qualified dependents) will be eligible to participate in health insurance and other employee benefit plans and policies established by the Company for its executive team from time to time on substantially the same terms as are made available to other such employees of the Company generally. The Executives participation (and the participation of the Executives qualified dependents) in the Companys benefit plans and policies will be subject to the terms of the applicable plan documents and the Companys generally applied policies, and the Company in its sole discretion may from time to time adopt, modify, interpret or discontinue such plans or policies.
(g) Expenses . The Company will reimburse the Executive for all reasonable and necessary expenses incurred by the Executive in connection with the Executives discharge of the Companys business, in accordance with the applicable Company policy as may be amended from time to time.
(h) Termination of Benefits . Except as set forth in Section 3 or as otherwise specified herein or in any other agreement between the Executive and the Company, if the Executives employment is terminated by the Company for any reason, with or without Cause, or if the Executive resigns the Executives employment voluntarily, with or without Good Reason, no compensation or other payments will be paid or provided to the Executive for periods following the Termination Date (as defined below) when such a termination of employment is effective, provided that any rights the Executive may have under the Companys benefit plans shall be determined under the provisions of such plans. If the Executives employment terminates as a result of the Executives death or Disability, no compensation or payments will be made to the Executive or to the Executives estate, as the case may be, other than any Accrued Compensation (as defined below) and those benefits to which the Executive may otherwise be entitled under the benefit plans of the Company.
3. Compensation and Benefits Upon Termination of Employment . Upon termination of the Executives employment (such date of termination being referred to as the Termination Date ), the Company will pay the Executive the compensation and benefits as described in this Section 3 .
(a) General Benefits Upon Termination . The Company will pay the Executive, or Executives estate, as the case may be, all accrued but unpaid Base Salary, earned and awarded but unpaid Targeted Incentive Bonus compensation, approved but unpaid business expenses, and accrued but unused vacation (collectively, the Accrued Compensation ), if any.
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(b) Termination without Cause or for Good Reason . In the event that the Company terminates the Executives employment without Cause or, in the event the Executive terminates Executives employment for Good Reason: (i) the Executive shall be eligible to receive: (A) a lump sum payment equal to nine (9) months of Base Salary (or if such termination occurs during the Corporate Transaction Period (as defined below), twelve (12) months of Base Salary), subject to payroll withholding and deductions ( Severance Payment ), (B) a lump sum payment equal to the maximum Targeted Incentive Bonus, prorated for the portion of the fiscal year elapsed as of the Termination Date (or, if such termination occurs during the Corporate Transaction Period, the payment shall be calculated without any proration) ( Severance Bonus Amount ), and (C) the benefits set forth in Section 3(d) , and (ii) the Executive shall be entitled to acceleration of vesting of such portion of the Executives outstanding Company equity awards (including, but not limited to, the Option and the RSU Award) as would have vested in the twelve (12)-month period following the Termination Date had the Executive continued to be employed by the Company for such period (or if such termination occurs simultaneously with or within twenty-four (24) months after a Corporate Transaction, acceleration of vesting of one hundred percent (100%) of the unvested portion of such Company equity awards (including, but not limited to, the Option and the RSU Award)), provided , however that in each case the receipt of the Severance Payment, the Severance Bonus Amount, benefits and accelerated vesting is expressly contingent upon the Executives execution and delivery of a release and waiver of claims agreement drafted by and satisfactory to counsel for the Company (the Release ) executed and becoming effective within sixty (60) days following the Termination Date. The Severance Payment, Severance Bonus Amount, and benefits shall be paid or commence on the first payroll period following the date the Release becomes effective (the Payment Commencement Date ). The foregoing notwithstanding, if the 60 th day following the Termination Date occurs in the calendar year following the termination, then the Payment Commencement Date shall be no earlier than January 1st of such subsequent calendar year. The provision of payments and benefits pursuant to this Section shall be subject to the terms and conditions set forth on Exhibit A .
(c) Definitions .
(i) Corporate Transaction means any (A) consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization in which the members/shareholders of the Company prior to such consolidation, merger or reorganization shall own less than fifty percent (50%) of the voting equity of the continuing or surviving entity after such consolidation, merger or reorganization, (B) any transaction or series of related transactions to which the Company is a party, in which in excess of fifty percent (50%) of the Companys voting equity securities is transferred, except for bona fide sales of the Companys equity securities to investors for primarily fundraising purposes, or (C) a sale of substantially all of the assets of the Company.
(ii) Corporate Transaction Period means the period beginning three (3) months prior to a Corporate Transaction and ending twenty-four (24) months after such Corporate Transaction.
(iii) Cause means (A) Executives conviction of, including pleading guilty or nolo contendere to, any felony or any crime involving dishonesty; (B) Executives intentional participation in any fraud or act of dishonesty against the Company; (C) a material violation by Executive of any of the Companys written policies or other serious misconduct, in each case that results in or is reasonably likely to result in material harm to Company that is not cured within thirty (30) days following written notice of Cause from the Company provided that a cure is possible; (D) Executives willful and continued failure substantially to perform any of Executives job duties that is not cured within thirty (30) days following written notice of Cause from the Company; (E)
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conduct by Executive which, in the good faith and reasonable determination of the Board, demonstrates gross unfitness to serve that is not cured within thirty (30) days following written notice of Cause from the Company provided a cure is possible; or (F) Executives material breach of any agreement with the Company (or its subsidiaries or successors) that is not cured within thirty (30) days following written notice of such breach from the Company. In the event the Cause definition in this agreement differs from the Cause definition in the Plan, the definition in this Agreement shall control.
(iv) Good Reason means the occurrence of any one or more of the following events without the prior written consent of the Executive: (A) a material reduction in Base Salary or Targeted Incentive Bonus opportunity or benefits, provided that any reduction in Base Salary (and any reduction in the dollar amount of the Executives Targeted Incentive Bonus opportunity resulting from such reduction in Base Salary) that is related to a cross-executive team base salary reduction shall not constitute Good Reason; (B) a material reduction in Executives title, duties, or responsibilities or change in reporting line; provided that a reassignment following a Corporate Transaction to a position that is substantially similar to the position held prior to the Corporate Transaction shall not constitute a material reduction in job responsibilities or duties; (C) a relocation of Executives primary work location that increases Executives one-way commute by more than fifty (50) miles; (D) any requirement by the Company that Executive relocate to the state in which the Companys principal place of business is located within the first three (3) years of his employment by the Company; (E) failure of the successor company to assume obligations contained in the Stock Option Agreement, Restricted Stock Unit Agreement, or any other equity compensation agreement in place between Executive and the Company at the time of the Corporate Transaction; (F) any written directive given to Executive by the Chief Executive Officer or the Board that is in conflict with Executives professional medical obligations or otherwise in violation of applicable law or regulation, in all cases, of which the Chief Executive Officer or the Board has knowledge of such obligations or law or regulation prior to the issuance of such directive; or (G) the Companys material breach of any terms of the Stock Option Agreement, the Restricted Stock Unit Agreement, or this Agreement; provided, however, that no such event or condition shall constitute Good Reason unless (i) the Executive gives the Company a written notice of termination for Good Reason not more than ninety (90) days after the initial existence of the condition, (ii) the grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice, and (iii) the Termination Date occurs within ninety (90) days following the Companys receipt of such notice. For avoidance of doubt, the failure of the Company to issue the Option or the RSU Award as required by the terms and conditions of this Agreement shall constitute a material breach of this Agreement.
(v) IPO Price means the initial price to the public as set forth in the final prospectus included within the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Companys Common Stock.
(vi) S-8 Filing Date means the effective date of the first registration statement on Form S-8 for the registration of Shares issuable pursuant to the Plan.
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(d) Benefits Continuation .
(i) COBRA . If the Executives employment is terminated pursuant to Section 3(b) and provided that the Executive is eligible for and elects to continue receiving group health and dental insurance pursuant to the federal COBRA law, 29 U.S.C. § 1161 et seq ., the Company will, for a nine (9)-month period (or if such termination occurs during the Corporate Transaction Period, a twelve (12)-month period) following the Payment Commencement Date (the Benefits Continuation Period ), continue to pay the share of the premium for such coverage that is paid by the Company for active and similarly situated employees who receive the same type of coverage. The remaining balance of any premium costs shall be paid by the Executive on a monthly basis for as long as, and to the extent that, the Executive remains eligible for COBRA continuation.
(ii) Special Cash Payments . If the Company determines, in its sole discretion, that it cannot pay its share of the COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the Companys share of the applicable COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the Benefits Continuation Period.
(iii) Alternative Eligibility . The above notwithstanding, in the event the Executive becomes eligible for health insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for health insurance coverage. Similarly, in the event the Executive becomes eligible for dental insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for dental insurance benefits. The Executive hereby represents that Executive will notify the Company in writing within three (3) days of becoming eligible for health or dental insurance benefits from a new employer during the Benefits Continuation Period.
(e) Death . This Agreement shall automatically terminate upon the death of the Executive and all monetary obligations of Company under Section 3 of this Agreement shall be prorated to the Termination Date and paid to the Executives estate.
(f) Disability . The Company may terminate the Executives employment for Disability if the Executive is unable, due to a physical or mental impairment, to perform the essential functions of the Executives job position, with or without reasonable accommodation, for a period of ninety (90) consecutive calendar days, or for at least sixty-five (65) business days within a twelve (12)-month period, provided that the Company shall terminate for Disability only in compliance with the Family Medical Leave Act, and the Americans with Disabilities Act. Any dispute regarding the existence of Disability shall be resolved by a panel of three (3) physicians, which shall consist of one physician selected by the Company, one physician selected by the Executive, and one physician selected by such other two physicians. A termination of employment pursuant to this Section 3(f) shall constitute a termination for Cause.
4. Acceleration of Vesting Following a Corporate Transaction . If on the date twenty-four (24) months immediately following the consummation of any Corporate Transaction the Executive is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then one hundred percent (100%) of the Executives outstanding Company equity awards that remain unvested shall vest, effective as of the second anniversary of the Corporate Transaction subject to the execution of a Release and it becoming effective.
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5. At-Will Employment . The Executive will be an at-will employee of the Company, which means the employment relationship can be terminated by either the Executive or the Company for any reason, at any time, with or without prior notice and with or without Cause or Good Reason. The Company makes no promise that the Executives employment will continue for any particular period of time, nor is there any promise that it will be terminated only under particular circumstances. No raise or bonus, if any, shall alter the Executives status as an at-will employee or create any implied contract of employment. Discussion of possible or potential benefits in future years is not an express or implied promise of continued employment. No manager, supervisor or officer of the Company has the authority to change the Executives status as an at-will employee. The at-will nature of the employment relationship with the Executive can only be altered by a written agreement signed by the Executive and the Chief Executive Officer.
6. Director and Officer Liability Insurance; Indemnification . During the Executives employment hereunder, the Executive shall be entitled to the same indemnification and director and officer liability insurance as the Company and its affiliates maintain for other corporate officers.
7. Employee Confidential Information and Inventions Assignment Agreement . The Executive shall execute and deliver the Companys standard Employee Confidential Information and Inventions Assignment Agreement set forth as Exhibit B hereto.
8. Attention to Duties; Conflict of Interest . Except with the prior written consent of the Chief Executive Officer, the Executive will not while employed by the Company undertake or engage in any other employment, occupation or business enterprise, other than ones in which the Executive is a passive investor. The Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of Executives duties hereunder. The Company has consented to the Executives pursuit of the external obligations set forth in Exhibit C hereto, provided , however, that such activities do not materially interfere with the performance of the Executives duties under this Agreement, are not competitive with the Companys business, and do not cause a conflict of interest (any such issue an External Conflict ). The existence of an External Conflict shall be determined in the sole discretion of the Chief Executive Officer, based upon a reasonable discussion of the potential issue with the Executive. Upon written notice of the Companys withdrawal of consent to external activities because of an External Conflict, the Executive shall cease the external activities either immediately (in the case of competition or conflict of interest), or within a reasonable period not longer than thirty (30) days, otherwise further pursuit of such external activities shall be deemed Cause for termination under Section 3(c)(iii)(F). Other than those set forth in Exhibit C , the Executive represents that the Executive has no other outstanding commitments inconsistent with any of the terms of this Agreement or the services to be rendered to the Company. While employed by the Company, the Executive shall not, directly or indirectly, whether as a partner, employee, creditor, shareholder, or otherwise, promote, participate or engage in any activity or other business competitive with the Companys business. The Executive shall not invest in any company or business which competes in any manner with the Company, except as a passive investor, and for so long as Executives direct holdings in any one such corporation shall not in the aggregate constitute more than two and a half percent (2.5%) of the voting stock of such corporation.
9. General Provisions .
(a) Contingency . Executives employment hereunder is contingent upon satisfactory proof of Executives right to work in the United States.
(b) Severability . If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect.
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(c) No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
(d) Assignment . This Agreement and all rights hereunder are personal to the Executive and may not be transferred or assigned by the Executive at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets; provided , however , that any such assignee assumes the Companys obligations hereunder.
(e) Withholding . All sums payable to the Executive hereunder shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
(f) Entire Agreement . This Agreement, including the exhibits and agreements referred to herein (which are deemed incorporated by reference herein) constitute the entire and only agreement and understanding between the parties governing the terms and conditions of employment of the Executive with the Company and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings governing the terms and conditions of the Executives employment by the Company. In the event of any conflict between the terms of any other agreement between the Executive and the Company entered into prior to the effective date of this Agreement, the terms of this Agreement shall control.
(g) Amendment . This Agreement may be amended, modified, superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto.
(h) Headings . The headings contained in this Agreement are for reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female references, and the word or is used in the inclusive sense.
(i) Notices . Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including, personal delivery by overnight courier, facsimile transmission, or the third day after mailing by first class mail) to the Company at its primary office location and to the Executive at Executives address as listed on the Company payroll (which address may be changed by written notice).
(j) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
(k) Governing Law, Forum Selection . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California without giving effect to the principles of conflict of laws. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a state or federal court located in Santa Clara County, California, and the Company and the Executive each consents to the jurisdiction of such a court.
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IN WITNESS WHEREOF , the Company and the Executive have executed this Executive Employment Agreement as of the date first above written.
K ODIAK S CIENCES I NC . | ||
By: | /s/ Victor Perlroth | |
Victor Perlroth, M.D. |
J ASON E HRLICH , M.D., P H .D.: | ||
/s/ Jason Ehrlich |
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EXHIBIT A
PAYMENTS SUBJECT TO SECTION 409A
1. Subject to this Exhibit A , any severance payments and benefits that may be due under the Agreement shall begin only upon the date of the Executives separation from service (determined as set forth below) which occurs on or after the termination of the Executives employment. The following rules shall apply with respect to distribution of the severance payments and benefits, if any, to be provided to the Executive under the Agreement, as applicable:
(a) It is intended that each installment of the severance payments and benefits under the Agreement provided under shall be treated as a separate payment for purposes of Section 409A. Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(b) If, as of the date of the Executives separation from service from the Company, the Executive is not a specified employee (within the meaning of Section 409A), then each installment of the severance payments or benefits shall be made on the dates and terms set forth in the Agreement.
(c) If, as of the date of the Executives separation from service from the Company, the Executive is a specified employee (within the meaning of Section 409A), then:
(i) Each installment of the severance payments and benefits due under the Agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the Executives separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and shall be paid at the time set forth in the Agreement; and
(ii) Each installment of the severance payments and benefits due under the Agreement that is not described in this Exhibit A , Section 1(c)(i) and that would, absent this subsection, be paid within the six-month period following the Executives separation from service from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, the Executives death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following the Executives separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executives second taxable year following the taxable year in which the separation from service occurs.
2. The determination of whether and when the Executives separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Exhibit A, Section 2, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
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3. The Company makes no representation or warranty and shall have no liability to the Executive or to any other person if any of the provisions of the Agreement (including this Exhibit) are determined to constitute deferred compensation subject to Section 409A but that do not satisfy an exemption from, or the conditions of, that section.
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EXHIBIT C
PERMITTED EXTERNAL ACTIVITIES
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Exhibit 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
This E XECUTIVE E MPLOYMENT A GREEMENT (the Agreement ), is entered into as of September 6, 2018 (the Effective Date ), by and between Kodiak Sciences Inc., a Delaware corporation (the Company ), and Hong Liang, Ph.D. (the Executive ).
RECITALS
WHEREAS , the Company desires to continue to employ the Executive, and the Executive desires to continue to be employed by the Company, for such purposes and upon the terms and conditions hereinafter provided; and
WHEREAS , the parties wish to establish the terms of the Executives continued employment with the Company and set out fully their respective rights, obligations and duties.
NOW, THEREFORE , in consideration of the promises and the terms and conditions set forth in this Agreement, the parties hereby agree as follows:
AGREEMENT
1. Employment by the Company .
(a) Title and Capacity . The Company and Executive hereby agree to continue the Executives employment with the Company, effective as of the Effective Date, under the terms set forth in this Agreement. The Executive will continue to serve as the Senior Vice President Discovery Medicine of the Company, reporting to the Companys Chief Executive Officer. During the Executives employment with the Company, the Executive will devote substantially all of Executives business time and attention to the business of the Company, except for vacation periods and reasonable periods of illness or other incapacities permitted by the Companys general employment policies, or as otherwise set forth herein.
(b) Duties and Location . The Executive shall perform such duties as are ordinary, customary and necessary in such role as carried out for a biopharmaceutical company and consistent with the Companys objectives to discover, develop, obtain approval, commercialize and sell its own pharmaceutical products, and to become registered to sell its securities to the public. The Executive shall perform any duties as are assigned to the Executive from time to time, consistent with the Bylaws of the Company and as required by the Chief Executive Officer. The Company reserves the right to reasonably require the Executive to perform Executives duties at places other than its corporate headquarters from time to time, and to require reasonable business travel.
(c) Company Policies . The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company that are made available to Executive, except that when the terms of this Agreement differ from or are in conflict with such general employment policies or practices, this Agreement shall control.
2. Compensation and Benefits .
(a) Base Salary . The Company agrees to pay the Executive for services rendered an annual base salary of Two Hundred Eight-Five Thousand Dollars ($285,000) (increasing to Three Hundred Fifty Five Thousand Dollars ($355,000) effective upon the IPO), subject to payroll withholding and deductions, and payable in accordance with Companys customary payroll practice (the Base Salary ). The Base Salary shall be reviewed periodically by the Companys Chief Executive Officer; provided , however , that any such review will not necessarily result in an adjustment to the Base Salary. Any change in the Base Salary must be approved by the Chief Executive Officer.
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(b) Targeted Incentive Bonus . The Executive is eligible to earn, in addition to the Base Salary and subject to the terms hereof and at the full discretion of the Chief Executive Officer, a targeted incentive bonus of thirty-five percent (35%) of Base Salary), subject to all applicable withholdings and deductions (the Targeted Incentive Bonus ). Whether Executive earns a Targeted Incentive Bonus award shall be determined by the Companys Chief Executive Officer in its discretion, based on the Executives and the Companys performance against goals during the applicable fiscal year. The Targeted Incentive Bonus performance goals will be set by the Chief Executive Officer in conjunction with the Companys Board of Directors or its authorized committee (in either case, the Board ) at the beginning of each fiscal year. Subject to the terms of this Agreement, the Executive will not earn any bonus if Executives employment terminates for any reason before the end of the fiscal year. Any Targeted Incentive Bonus, if earned, shall be payable no earlier than the first payroll period in the new fiscal year, but in no event later than the end of the first quarter following the applicable fiscal year.
(c) Equity . Executive will be eligible to receive Company equity awards pursuant to any plans or arrangements the Company may have in effect from time to time. The Board will determine in its discretion whether Executive will be granted any Company equity awards and the terms of any Company equity award in accordance with the terms of any applicable plan or arrangement that may be in effect from time to time.
(d) Benefits . The Executive (and, where applicable, the Executives qualified dependents) will be eligible to participate in health insurance and other employee benefit plans and policies established by the Company for its executive team from time to time on substantially the same terms as are made available to other such employees of the Company generally. The Executives participation (and the participation of the Executives qualified dependents) in the Companys benefit plans and policies will be subject to the terms of the applicable plan documents and the Companys generally applied policies, and the Company in its sole discretion may from time to time adopt, modify, interpret or discontinue such plans or policies.
(e) Expenses . The Company will reimburse the Executive for all reasonable and necessary expenses incurred by the Executive in connection with the Executives discharge of the Companys business, in accordance with the applicable Company policy as may be amended from time to time.
(f) Termination of Benefits . Except as set forth in Section 3 or as otherwise specified herein or in any other agreement between the Executive and the Company, if the Executives employment is terminated by the Company for any reason, with or without Cause, or if the Executive resigns the Executives employment voluntarily, with or without Good Reason, no compensation or other payments will be paid or provided to the Executive for periods following the Termination Date (as defined below) when such a termination of employment is effective, provided that any rights the Executive may have under the Companys benefit plans shall be determined under the provisions of such plans. If the Executives employment terminates as a result of the Executives death or Disability, no compensation or payments will be made to the Executive or to the Executives estate, as the case may be, other than any Accrued Compensation (as defined below) and those benefits to which the Executive may otherwise be entitled under the benefit plans of the Company.
3. Compensation and Benefits Upon Termination of Employment . Upon termination of the Executives employment (such date of termination being referred to as the Termination Date ), the Company will pay the Executive the compensation and benefits as described in this Section 3 .
(a) General Benefits Upon Termination . The Company will pay the Executive, or Executives estate, as the case may be, all accrued but unpaid Base Salary, earned and awarded but unpaid Targeted Incentive Bonus compensation, approved but unpaid business expenses, and accrued but unused vacation (collectively, the Accrued Compensation ), if any.
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(b) Termination without Cause or for Good Reason . In the event that the Company terminates the Executives employment without Cause or, in the event the Executive terminates Executives employment for Good Reason: (i) the Executive shall be eligible to receive: (A) a lump sum payment equal to nine (9) months of Base Salary, subject to payroll withholding and deductions ( Severance Payment ), (B) a lump sum payment equal to the maximum Targeted Incentive Bonus, prorated for the portion of the fiscal year elapsed as of the Termination Date (or, if such termination occurs during the Corporate Transaction Period (as defined below), the payment shall be calculated without any proration, and by multiplying the maximum Targeted Incentive Bonus by seventy-five percent (75%)) ( Severance Bonus Amount ), and (C) the benefits set forth in Section 3(d) , and (ii) the Executive shall be entitled to acceleration of vesting of such portion of the Executives outstanding Company equity awards as would have vested in the nine (9)-month period following the Termination Date had the Executive continued to be employed by the Company for such period (or if such termination occurs simultaneously with or within twenty-four (24) months after a Corporate Transaction, acceleration of vesting of one hundred percent (100%) of the unvested portion of such Company equity awards), provided , however that in each case the receipt of the Severance Payment, the Severance Bonus Amount, benefits and accelerated vesting is expressly contingent upon the Executives execution and delivery of a release and waiver of claims agreement drafted by and satisfactory to counsel for the Company (the Release ) executed and becoming effective within sixty (60) days following the Termination Date. The Severance Payment, Severance Bonus Amount, and benefits shall be paid or commence on the first payroll period following the date the Release becomes effective (the Payment Commencement Date ). The foregoing notwithstanding, if the 60 th day following the Termination Date occurs in the calendar year following the termination, then the Payment Commencement Date shall be no earlier than January 1st of such subsequent calendar year. The provision of payments and benefits pursuant to this Section shall be subject to the terms and conditions set forth on Exhibit A .
(c) Definitions .
(i) Corporate Transaction means any (A) consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization in which the members/shareholders of the Company prior to such consolidation, merger or reorganization shall own less than fifty percent (50%) of the voting equity of the continuing or surviving entity after such consolidation, merger or reorganization, (B) any transaction or series of related transactions to which the Company is a party, in which in excess of fifty percent (50%) of the Companys voting equity securities is transferred, except for bona fide sales of the Companys equity securities to investors for primarily fundraising purposes, or (C) a sale of substantially all of the assets of the Company.
(ii) Corporate Transaction Period means the period beginning three (3) months prior to a Corporate Transaction and ending twenty-four (24) months after such Corporate Transaction.
(iii) Cause means (A) Executives conviction of, including pleading guilty or nolo contendere to, any felony or any crime involving dishonesty; (B) Executives intentional participation in any fraud or act of dishonesty against the Company; (C) a material violation by Executive of any of the Companys written policies or other serious misconduct, in each case that results in or is reasonably likely to result in material harm to Company that is not cured within thirty (30) days following written notice of Cause from the Company provided that a cure is possible; (D) Executives willful and continued
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failure substantially to perform any of Executives job duties that is not cured within thirty (30) days following written notice of Cause from the Company; (E) conduct by Executive which, in the good faith and reasonable determination of the Board, demonstrates gross unfitness to serve that is not cured within thirty (30) days following written notice of Cause from the Company provided a cure is possible; or (F) Executives material breach of any agreement with the Company (or its subsidiaries or successors) that is not cured within thirty (30) days following written notice of such breach from the Company. In the event the Cause definition in this agreement differs from the Cause definition in the Plan, the definition in this Agreement shall control.
(iv) Good Reason means the occurrence of any one or more of the following events without the prior written consent of the Executive: (A) a material reduction in Base Salary or Targeted Incentive Bonus opportunity, or benefits, provided that any reduction in Base Salary (and any reduction in the dollar amount of the Executives Targeted Incentive Bonus opportunity resulting from such reduction in Base Salary) that is related to a cross-executive team base salary reduction shall not constitute Good Reason; (B) a material reduction in Executives title, duties, or responsibilities or change in reporting line; provided that a reassignment following a Corporate Transaction to a position that is substantially similar to the position held prior to the Corporate Transaction shall not constitute a material reduction in job responsibilities or duties; (C) a relocation of Executives primary work location that increases Executives one-way commute by more than fifty (50) miles; (D) failure of the successor company to assume obligations contained in any equity compensation agreement in place between Executive and the Company at the time of the Corporate Transaction; (F) any written directive given to Executive by the Chief Executive Officer or the Board that is in conflict with Executives professional obligations or otherwise in violation of applicable law or regulation, in all cases, of which the Chief Executive Officer or the Board has knowledge of such obligations or law or regulation prior to the issuance of such directive; or (G) the Companys material breach of any equity compensation agreement in place between Executive and the Company or this Agreement; provided, however, that no such event or condition shall constitute Good Reason unless (i) the Executive gives the Company a written notice of termination for Good Reason not more than ninety (90) days after the initial existence of the condition, (ii) the grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice, and (iii) the Termination Date occurs within ninety (90) days following the Companys receipt of such notice.
(v) IPO means the effective date of the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Companys Common Stock.
(d) Benefits Continuation .
(i) COBRA . If the Executives employment is terminated pursuant to Section 3(b) and provided that the Executive is eligible for and elects to continue receiving group health and dental insurance pursuant to the federal COBRA law, 29 U.S.C. § 1161 et seq ., the Company will, for a nine (9)-month period following the Payment Commencement Date (the Benefits Continuation Period ), continue to pay the share of the premium for such coverage that is paid by the Company for active and similarly situated employees who receive the same type of coverage. The remaining balance of any premium costs shall be paid by the Executive on a monthly basis for as long as, and to the extent that, the Executive remains eligible for COBRA continuation.
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(ii) Special Cash Payments . If the Company determines, in its sole discretion, that it cannot pay its share of the COBRA premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the Companys share of the applicable COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the Benefits Continuation Period.
(iii) Alternative Eligibility . The above notwithstanding, in the event the Executive becomes eligible for health insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for health insurance coverage. Similarly, in the event the Executive becomes eligible for dental insurance benefits from a new employer during the Benefits Continuation Period, the Companys obligations under this Section 3(d) shall immediately cease and the Executive shall not be entitled to any additional monthly premium payments for dental insurance benefits. The Executive hereby represents that Executive will notify the Company in writing within three (3) days of becoming eligible for health or dental insurance benefits from a new employer during the Benefits Continuation Period.
(e) Death . This Agreement shall automatically terminate upon the death of the Executive and all monetary obligations of Company under Section 3 of this Agreement shall be prorated to the Termination Date and paid to the Executives estate.
(f) Disability . The Company may terminate the Executives employment for Disability if the Executive is unable, due to a physical or mental impairment, to perform the essential functions of the Executives job position, with or without reasonable accommodation, for a period of ninety (90) consecutive calendar days, or for at least sixty-five (65) business days within a twelve (12)-month period, provided that the Company shall terminate for Disability only in compliance with the Family Medical Leave Act, and the Americans with Disabilities Act. Any dispute regarding the existence of Disability shall be resolved by a panel of three (3) physicians, which shall consist of one physician selected by the Company, one physician selected by the Executive, and one physician selected by such other two physicians. A termination of employment pursuant to this Section 3(f) shall constitute a termination for Cause.
4. Acceleration of Vesting Following a Corporate Transaction . If on the date twenty-four (24) months immediately following the consummation of any Corporate Transaction the Executive is providing services to the acquiring company (or its subsidiaries or parent) as either an employee or a consultant, then one hundred percent (100%) of the Executives outstanding Company equity awards that remain unvested shall vest, effective as of the second anniversary of the Corporate Transaction subject to the execution of a Release and it becoming effective.
5. At-Will Employment . The Executive will continue to be an at-will employee of the Company, which means the employment relationship can be terminated by either the Executive or the Company for any reason, at any time, with or without prior notice and with or without Cause or Good Reason. The Company makes no promise that the Executives employment will continue for any particular period of time, nor is there any promise that it will be terminated only under particular circumstances. No raise or bonus, if any, shall alter the Executives status as an at-will employee or create any implied contract of employment. Discussion of possible or potential benefits in future years is not an express or implied promise of continued employment. No manager, supervisor or officer of the Company has the authority to change the Executives status as an at-will employee. The at-will nature of the employment relationship with the Executive can only be altered by a written agreement signed by the Executive and an authorized member of the Chief Executive Officer.
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6. Director and Officer Liability Insurance; Indemnification . During the Executives employment hereunder, the Executive shall be entitled to the same indemnification and director and officer liability insurance as the Company and its affiliates maintain for other corporate officers.
7. Employee Confidential Information and Inventions Assignment Agreement . The Executive shall execute and deliver the Companys standard Employee Confidential Information and Inventions Assignment Agreement set forth as Exhibit B hereto.
8. Attention to Duties; Conflict of Interest . Except with the prior written consent of the Company, the Executive will not while employed by the Company undertake or engage in any other employment, occupation or business enterprise, other than ones in which the Executive is a passive investor. The Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of Executives duties hereunder. The Company has consented to the Executives pursuit of the external obligations set forth in Exhibit C hereto, provided , however, that such activities do not materially interfere with the performance of the Executives duties under this Agreement, are not competitive with the Companys business, and do not cause a conflict of interest (any such issue an External Conflict ). The existence of an External Conflict shall be determined in the sole discretion of the Chief Executive Officer, based upon a reasonable discussion of the potential issue with the Executive. Upon written notice of the Companys withdrawal of consent to external activities because of an External Conflict, the Executive shall cease the external activities either immediately (in the case of competition or conflict of interest), or within a reasonable period not longer than thirty (30) days, otherwise further pursuit of such external activities shall be deemed Cause for termination under Section 3(c)(iii)(F). Other than those set forth in Exhibit C , the Executive represents that the Executive has no other outstanding commitments inconsistent with any of the terms of this Agreement or the services to be rendered to the Company. While employed by the Company, the Executive shall not, directly or indirectly, whether as a partner, employee, creditor, shareholder, or otherwise, promote, participate or engage in any activity or other business competitive with the Companys business. The Executive shall not invest in any company or business which competes in any manner with the Company, except as a passive investor, and for so long as Executives direct holdings in any one such corporation shall not in the aggregate constitute more than two and a half percent (2.5%) of the voting stock of such corporation.
9. General Provisions .
(a) Severability . If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect.
(b) No Waiver . The failure by either party at any time to require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced.
(c) Assignment . This Agreement and all rights hereunder are personal to the Executive and may not be transferred or assigned by the Executive at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets; provided , however , that any such assignee assumes the Companys obligations hereunder.
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(d) Withholding . All sums payable to the Executive hereunder shall be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law.
(e) Entire Agreement . This Agreement, including the exhibits and agreements referred to herein (which are deemed incorporated by reference herein) constitute the entire and only agreement and understanding between the parties governing the terms and conditions of employment of the Executive with the Company and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings governing the terms and conditions of the Executives employment by the Company. In the event of any conflict between the terms of any other agreement between the Executive and the Company entered into prior to the Effective Date, the terms of this Agreement shall control.
(f) Amendment . This Agreement may be amended, modified, superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto.
(g) Headings . The headings contained in this Agreement are for reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female references, and the word or is used in the inclusive sense.
(h) Notices . Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including, personal delivery by overnight courier, facsimile transmission, or the third day after mailing by first class mail) to the Company at its primary office location and to the Executive at Executives address as listed on the Company payroll (which address may be changed by written notice).
(i) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement.
(j) Governing Law, Forum Selection . This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of California without giving effect to the principles of conflict of laws. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a state or federal court located in Santa Clara County, California, and the Company and the Executive each consents to the jurisdiction of such a court.
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IN WITNESS WHEREOF , the Company and the Executive have executed this Executive Employment Agreement as of the date first above written.
K ODIAK S CIENCES I NC . | ||
By: | /s/ Victor Perlroth | |
Victor Perlroth, M.D. Chief Executive Officer |
H ONG L IANG , P H .D.: |
/s/ Hong Liang |
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EXHIBIT A
PAYMENTS SUBJECT TO SECTION 409A
1. Subject to this Exhibit A , any severance payments and benefits that may be due under the Agreement shall begin only upon the date of the Executives separation from service (determined as set forth below) which occurs on or after the termination of the Executives employment. The following rules shall apply with respect to distribution of the severance payments and benefits, if any, to be provided to the Executive under the Agreement, as applicable:
(a) It is intended that each installment of the severance payments and benefits under the Agreement provided under shall be treated as a separate payment for purposes of Section 409A. Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(b) If, as of the date of the Executives separation from service from the Company, the Executive is not a specified employee (within the meaning of Section 409A), then each installment of the severance payments or benefits shall be made on the dates and terms set forth in the Agreement.
(c) If, as of the date of the Executives separation from service from the Company, the Executive is a specified employee (within the meaning of Section 409A), then:
(i) Each installment of the severance payments and benefits due under the Agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the Executives separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and shall be paid at the time set forth in the Agreement; and
(ii) Each installment of the severance payments and benefits due under the Agreement that is not described in this Exhibit A , Section 1(c)(i) and that would, absent this subsection, be paid within the six-month period following the Executives separation from service from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, the Executives death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following the Executives separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executives second taxable year following the taxable year in which the separation from service occurs.
2. The determination of whether and when the Executives separation from service from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Exhibit A, Section 2, Company shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
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3. The Company makes no representation or warranty and shall have no liability to the Executive or to any other person if any of the provisions of the Agreement (including this Exhibit) are determined to constitute deferred compensation subject to Section 409A but that do not satisfy an exemption from, or the conditions of, that section.
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EXHIBIT B
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Kodiak Sciences Inc., its subsidiaries, parents, affiliates, successors and assigns (together Company ), and the compensation paid to me now and during my employment with Company, I hereby enter into this Employee Confidential Information and Invention Assignment Agreement (the Agreement ) and agree as follows:
1. C ONFIDENTIAL I NFORMATION P ROTECTIONS .
1.1 Recognition of Companys Rights; Nondisclosure; Exceptions. I understand and acknowledge that my employment by Company creates a relationship of confidence and trust with respect to Companys Confidential Information (as defined below) and that Company has a protectable interest therein.
(a) At all times during and after my employment, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Companys Confidential Information, except as such disclosure, use or publication may be required in connection with my work for Company, or unless an officer of Company expressly authorizes such disclosure. I will obtain Companys written approval before publishing or submitting for publication any material (written, oral, or otherwise) that discloses and/or incorporates any Confidential Information. I hereby assign to Company any rights I may have or acquire in such Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns. I will take all reasonable precautions to prevent the inadvertent accidental disclosure of Confidential Information. The foregoing, or anything to the contrary in this Agreement or any other agreement between the Company and me, notwithstanding:
(b) Pursuant to 18 U.S.C. Section 1833(b), I shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that: (1) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
(c) It is understood that, at all such times, I am free to use information which was known to me prior to employment with Company or which is generally known in the trade or industry through no breach of this Agreement or other act or omission by me.
(d) Nothing in this Agreement shall limit my right to discuss my employment or report possible violations of law or regulation with the Equal Employment Opportunity Commission, United States Department of Labor, the National Labor Relations Board, the Securities and Exchange Commission, or other federal government agency or similar state or local agency or to discuss the terms and conditions of my employment with others to the extent expressly permitted by Section 7 of the National Labor Relations Act or to the extent that such disclosure is protected under the applicable provisions of law or regulation, including but not limited to whistleblower statutes or other similar provisions that protect such disclosure.
1.2 Confidential Information. The term Confidential Information shall mean any and all confidential knowledge, data or information of Company. By way of illustration but not limitation, Confidential Information includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, software in source or object code versions, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques and any other proprietary technology and all Intellectual Property Rights therein (collectively, Inventions ); (b) information regarding research, development, assay components, biological materials, cell lines, clinical data, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, margins, discounts, credit terms, pricing and billing policies, quoting procedures, methods of obtaining business, forecasts, future plans and potential strategies, financial projections and business strategies, operational plans, financing and capital-raising plans, activities and agreements, internal services and operational manuals, methods of conducting Company business, suppliers and supplier information, and purchasing; (c) information regarding customers and potential customers of Company, including customer lists, names, representatives, their needs or desires with respect to the types of products or services offered by Company, proposals, bids, contracts and their contents and parties, the type and
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quantity of products and services provided or sought to be provided to customers and potential customers of Company and other non-public information relating to customers and potential customers; (d) information regarding any of Companys business partners and their services, including names; representatives, proposals, bids, contracts and their contents and parties, the type and quantity of products and services received by Company, and other non-public information relating to business partners; (e) information regarding personnel, employee lists, compensation, and employee skills; and (f) any other non-public information which a competitor of Company could use to the competitive disadvantage of Company.
1.3 Third Party Information. I understand, in addition, that Company has received and in the future will receive from third parties their confidential and/or proprietary knowledge, data or information ( Third Party Information ) subject to a duty on Companys part to maintain the confidentiality of such information and to use it only for certain limited purposes. During my employment and thereafter, I will hold Third Party Information in confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, except in connection with my work for Company, Third Party Information unless expressly authorized by an officer of Company in writing.
1.4 Term of Nondisclosure Restrictions. I understand that there is no temporal limitation on my obligation not to use or disclose Confidential Information and Third Party Information, as provided in this Section 1. If a temporal limitation on my obligation not to use or disclose such information is required under applicable law, and the Agreement or its restriction(s) cannot otherwise be enforced, I agree and Company agrees that the two (2)-year period after the date my employment ends will be the temporal limitation applicable to the contested restriction, provided, however, that this sentence will not apply to trade secrets protected without temporal limitation under applicable law. I understand that nothing in this Agreement prevents me from engaging in protected activity, as described in Section 13 below.
1.5 No Improper Use of Information of Prior Employers and Others. During my employment by Company, I will not improperly use or disclose confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person.
2. A SSIGNMENTS OF I NVENTIONS .
2.1 Definitions. As used in this Agreement, the term Intellectual Property Rights means all trade secrets, Copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country; the term Copyright means the exclusive legal right to reproduce, perform, display, distribute and make derivative works of a work of authorship (as a literary, musical, or artistic work) recognized by the laws of any jurisdiction or country; and the term Moral Rights means all paternity, integrity, disclosure, withdrawal, special and any other similar rights recognized by the laws of any jurisdiction or country.
2.2 Excluded Inventions and Other Inventions. Attached hereto as Exhibit 1 is a list describing all existing Inventions, if any, that may relate to Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the commencement of my employment with, and which are not to be assigned to, Company ( Excluded Inventions ). If no such list is attached, I represent and agree that it is because I have no rights in any existing Inventions that may relate to Companys business or actual or demonstrably anticipated research or development. For purposes of this Agreement, Other Inventions means Inventions in which I have or may have an interest, as of the commencement of my employment or thereafter, other than Company Inventions (defined below) and Excluded Inventions. I acknowledge and agree that if I use any Excluded Inventions or any Other Inventions in the scope of my employment, or if I include any Excluded Inventions or Other Inventions in any product or service of Company, or if my rights in any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise be required for, the exercise by Company of any rights assigned to Company under this Agreement, I will immediately so notify Company in writing. Unless Company and I agree otherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to Company, in such circumstances (whether or not I give Company notice as required above), a non-exclusive, perpetual, transferable, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in
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any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Excluded Inventions and Other Inventions. To the extent that any third parties have rights in any such Other Inventions, I hereby represent and warrant that such third party or parties have validly and irrevocably granted to me the right to grant the license stated above.
2.3 Assignment of Company Inventions. Inventions assigned to Company, or to a third party as directed by Company pursuant to Section 2.6, are referred to in this Agreement as Company Inventions . Subject to Section 2.4 (Unassigned or Nonassignable Inventions) and except for Excluded Inventions set forth in Exhibit 1 and Other Inventions, I hereby assign, grant and convey to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company. To the extent required by applicable Copyright laws, I agree to assign in the future (when any copyrightable Inventions are first fixed in a tangible medium of expression) my Copyright rights in and to such Inventions. Any assignment of Company Inventions (and all Intellectual Property Rights with respect thereto) hereunder includes an assignment of all Moral Rights. To the extent such Moral Rights cannot be assigned to Company and to the extent the following is allowed by the laws in any country where Moral Rights exist, I hereby unconditionally and irrevocably waive the enforcement of such Moral Rights, and all claims and causes of action of any kind against Company or related to Companys customers, with respect to such rights. I further acknowledge and agree that neither my successors-in-interest nor legal heirs retain any Moral Rights in any Company Inventions (and any Intellectual Property Rights with respect thereto).
2.4 Unassigned or Nonassignable Inventions. I recognize that this Agreement will not be deemed to require assignment of any Invention that is covered under California Labor Code section 2870(a), provided that that nothing herein shall forbid or restrict the right of Company to provide for full title to certain patents and Inventions to be in the United States, as required by contracts between the Company and the United States or any of its agencies.
2.5 Obligation to Keep Company Informed. During the period of my employment and for one (1) year after termination of my employment, I will promptly and fully disclose to Company in writing
all Inventions authored, conceived, or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to Company all patent applications filed by me or on my behalf within one (1) year after termination of employment. At the time of each such disclosure, I will advise Company in writing of any Inventions that I believe fully qualify for protection under the provisions of California Labor Code sections 2780, 2782 ; and I will at that time provide to Company in writing all evidence necessary to substantiate that belief. Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to Company pursuant to this Agreement relating to Inventions that qualify fully for protection under California Labor Code sections 2780, 2782. I will preserve the confidentiality of any Invention that does not fully qualify for protection under California Labor Code sections 2780, 2782.
2.6 Government or Third Party. I agree that, as directed by Company, I will assign to a third party, including without limitation the United States, all my right, title, and interest in and to any particular Company Invention.
2.7 Ownership of Work Product.
(a) I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by Copyright are works made for hire, pursuant to United States Copyright Act (17 U.S.C., Section 101). I agree that Company will exclusively own all work product that is made by me (solely or jointly with others) within the scope of my employment, and I hereby irrevocably and unconditionally assign to Company all right, title, and interest worldwide in and to such work product. I understand and agree that I have no right to publish on, submit for publishing, or use for any publication any work product protected by this Section, except as necessary to perform services for Company.
2.8 Enforcement of Intellectual Property Rights and Assistance. I will assist Company in every proper way to obtain, and from time to time enforce, United States and foreign Intellectual Property Rights and Moral Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Intellectual Property Rights and the assignment thereof. In addition, I will
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execute, verify and deliver assignments of such Intellectual Property Rights to Company or its designee, including the United States or any third party designated by Company. My obligation to assist Company with respect to Intellectual Property Rights relating to such Company Inventions in any and all countries will continue beyond the termination of my employment, but Company will compensate me at a reasonable rate after my termination for the time actually spent by me at Companys request on such assistance. In the event Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in this paragraph, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Intellectual Property Rights assigned under this Agreement to Company.
2.9 Incorporation of Software Code. I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU General Public License or Lesser General Public License or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company except in strict compliance with Companys policies regarding the use of such software.
3. R ECORDS . I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by Company) of all Confidential Information developed by me and all Company Inventions made by me during the period of my employment at Company, which records will be available to and remain the sole property of Company at all times.
4. D UTY OF L OYALTY D URING E MPLOYMENT . I agree that during the period of my employment by Company I will not, without Companys express written consent, directly or indirectly engage in any employment or business activity which is directly or indirectly competitive with, or would otherwise conflict with, my employment by Company.
5. N O S OLICITATION OF E MPLOYEES , C ONSULTANTS , C ONTRACTORS . I agree that during the period of my employment and for the one (1) year period after the date my employment ends for any reason, including but not limited to voluntary termination by me or involuntary termination by Company, I will not, as an officer, director, employee, consultant, owner, partner, or in any other capacity, either directly or through others, except on behalf of Company, solicit, induce, encourage, or participate in soliciting, inducing or encouraging any person known to me to be an employee, consultant, or independent contractor of Company to terminate his or her relationship with Company, even if I did not initiate the discussion or seek out the contact.
6. R EASONABLENESS OF R ESTRICTIONS .
6.1 I agree that I have read this entire Agreement and understand it. I agree that this Agreement does not prevent me from earning a living or pursuing my career. I agree that the restrictions contained in this Agreement are reasonable, proper, and necessitated by Companys legitimate business interests. I represent and agree that I am entering into this Agreement freely and with knowledge of its contents with the intent to be bound by the Agreement and the restrictions contained in it.
6.2 In the event that a court finds this Agreement, or any of its restrictions, to be ambiguous, unenforceable, or invalid, Company and I agree that the court will read the Agreement as a whole and interpret the restriction(s) at issue to be enforceable and valid to the maximum extent allowed by law.
6.3 If the court declines to enforce this Agreement in the manner provided in subsection 6.2, Company and I agree that this Agreement will be automatically modified to provide Company with the maximum protection of its business interests allowed by law and I agree to be bound by this Agreement as modified.
7. N O C ONFLICTING A GREEMENT OR O BLIGATION . I represent that my performance of all the terms of this Agreement and as an employee of Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict with this Agreement.
8. R ETURN O F C OMPANY P ROPERTY . When I leave the employ of Company, I will deliver to Company any and all drawings, notes, memoranda, specifications, devices, formulas and documents, together with all copies thereof, and any other material
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containing or disclosing any Company Inventions, Third Party Information or Confidential Information of Company. I agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to Company. In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Confidential Information, I agree to provide Company with a computer-useable copy of all such Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed. I further agree that any property situated on Companys premises and owned by Company, including any storage media, filing cabinets or other work areas, is subject to inspection by Companys personnel at any time with or without notice. Prior to leaving, I will cooperate with Company in attending an exit interview and completing and signing Companys termination statement if required to do so by Company.
9. L EGAL AND E QUITABLE R EMEDIES .
9.1 I agree that it may be impossible to assess the damages caused by my violation of this Agreement or any of its terms. I agree that any threatened or actual violation of this Agreement or any of its terms will constitute immediate and irreparable injury to Company, and Company will have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that Company may have for a breach or threatened breach of this Agreement.
9.2 In the event Company enforces this Agreement through a court order, I agree that the restrictions of Section 5 will remain in effect for a period of twelve (12) months from the effective date of the Order enforcing the Agreement.
10. N OTICES . Any notices required or permitted under this Agreement will be given to Company at its headquarters location at the time notice is given, labeled Attention Chief Executive Officer, and to me at my address as listed on Company payroll, or at such other address as Company or I may designate by written notice to the other. Notice will be effective upon receipt or refusal of delivery. If delivered by certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, notice will be
considered to have been given on the delivery date reflected by the courier or express mail service receipt.
11. P UBLICATION OF T HIS A GREEMENT TO S UBSEQUENT E MPLOYER OR B USINESS A SSOCIATES OF E MPLOYEE .
11.1 If I am offered employment or the opportunity to enter into any business venture as owner, partner, consultant or other capacity while the restrictions described in Section 5 of this Agreement are in effect I agree to inform my potential employer, partner, co-owner and/or others involved in managing the business with which I have an opportunity to be associated of my obligations under this Agreement and also agree to provide such person or persons with a copy of this Agreement.
11.2 I agree to inform Company of all employment and business ventures which I enter into while the restrictions described in Section 5 of this Agreement are in effect and I also authorize Company to provide copies of this Agreement to my employer, partner, co-owner and/or others involved in managing the business with which I am employed or associated and to make such persons aware of my obligations under this Agreement.
12. G ENERAL P ROVISIONS .
12.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of California as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction and venue of the state and federal courts located in Santa Clara County, California for any lawsuit filed there against me by Company arising from or related to this Agreement.
12.2 Severability. In case any one or more of the provisions, subsections, or sentences contained in this Agreement will, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect the other provisions of this Agreement, and this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained in this Agreement. If moreover, any one or more of the provisions contained in this Agreement will for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it will be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it will then appear.
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12.3 Successors and Assigns. This Agreement is for my benefit and the benefit of Company, its successors, assigns, parent corporations, subsidiaries, affiliates, and purchasers, and will be binding upon my heirs, executors, administrators and other legal representatives.
12.4 Survival. This Agreement shall survive the termination of my employment, regardless of the reason, and the assignment of this Agreement by Company to any successor in interest or other assignee.
12.5 Employment At-Will. I agree and understand that nothing in this Agreement will change my at-will employment status or confer any right with respect to continuation of employment by Company, nor will it interfere in any way with my right or Companys right to terminate my employment at any time, with or without cause or advance notice.
12.6 Waiver. No waiver by Company of any breach of this Agreement will be a waiver of any preceding or succeeding breach. No waiver by Company of any right under this Agreement will be construed as a waiver of any other right. Company will not be required to give notice to enforce strict adherence to all terms of this Agreement.
12.7 Export. I agree not to export, reexport, or transfer, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, in violation of the United States export laws or regulations.
12.8 Advice of Counsel. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT WILL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION OF THIS AGREEMENT.
12.9 Entire Agreement. The obligations pursuant to Sections 1 and 2 (except Subsection 2.4 and 2.7) of this Agreement will apply to any time during which I was previously engaged, or am in the future engaged, by Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter of this Agreement and supersedes and merges all prior discussions between us ; provided, however, prior to the execution of this Agreement, if Company and I were parties to any agreement regarding the
subject matter hereof, that agreement will be superseded by this Agreement prospectively only. No modification of or amendment to this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
13. P ROTECTED A CTIVITY N OT P ROHIBITED . I understand that nothing in this Agreement limits or prohibits me from filing a charge or complaint with, or otherwise communicating or cooperating with or participating in any investigation or proceeding that may be conducted by, any federal, state or local government agency or commission, including the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, and the National Labor Relations Board ( Government Agencies ), including disclosing documents or other information as permitted by law, without giving notice to, or receiving authorization from, the Company. Notwithstanding, in making any such disclosures or communications, I agree to take all reasonable precautions to prevent any unauthorized use or disclosure of any information that may constitute Confidential Information to any parties other than the Government Agencies. I further understand that I am not permitted to disclose the Companys attorney-client privileged communications or attorney work product. In addition, I hereby acknowledge that the Company has provided me with notice in compliance with the Defend Trade Secrets Act of 2016 regarding immunity from liability for limited disclosures of trade secrets. The full text of the notice is attached in Exhibit 2 .
[Signatures to follow on next page]
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This Agreement will be effective as of September 6, 2018.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS . I HAVE COMPLETELY FILLED OUT E XHIBIT 1 TO THIS A GREEMENT .
/s/ Victor Perlroth |
9/19/2018 |
|||||
Victor Perlroth, M.D. | Date | |||||
Chief Executive Officer | ||||||
A CCEPTED AND A GREED T O : | ||||||
By: /s/ Hong Liang |
9/19/2018 |
|||||
Hong Liang, Ph.D. | Date |
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E XHIBIT 1
E XCLUDED I NVENTIONS
TO: | Kodiak Sciences Inc. (Company) | |
FROM: | Hong Liang, Ph.D. | |
DATE: | September 6, 2018 | |
SUBJECT: | Excluded Inventions ( See Section 2.2 of the Agreement) |
I. |
Disclosable Excluded Inventions . Except as listed in Section II below, the following is a complete list describing all existing Inventions, if any, that may relate to Companys business or actual or demonstrably anticipated research or development and that were made by me or acquired by me prior to the commencement of my employment with, and which are not to be assigned to Company: |
☒ |
No inventions or improvements. |
☐ |
See below: |
☐ |
Additional sheets attached. |
II. |
Confidential Excluded Inventions . Due to a prior confidentiality agreement, I cannot complete the disclosure under Section I above with respect to inventions or improvements generally listed below, the intellectual property rights and duty of confidentiality with respect to which I owe to the following party(ies): |
Invention or Improvement | Party(ies) | Relationship | ||||||||
1. | ||||||||||
2. | ||||||||||
3. |
☐ |
Additional sheets attached. |
III. |
Limited Exclusion Notification. |
NOTICE REQUIRED BY CALIFORNIA LABOR CODE SECTION 2872:
This is to notify you in accordance with Section 2872 of the California Labor Code, as set forth in Attachment 1, that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Companys equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a. |
Relate at the time of conception or reduction to practice to Companys business, or actual or demonstrably anticipated research or development; or |
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b. |
Result from any work performed by you for Company. |
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.
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Attachment 1
California Labor Code Provisions
Section 2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employers equipment, supplies, facilities, or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the invention to the employers business, or actual or demonstrably anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
Section 2871. No employer shall require a provision made void and unenforceable by Section 2870 as a condition of employment or continued employment. Nothing in this article shall be construed to forbid or restrict the right of an employer to provide in contracts of employment for disclosure, provided that any such disclosures be received in confidence, of all of the employees inventions made solely or jointly with others during the term of his or her employment, a review process by the employer to determine such issues as may arise, and for full title to certain patents and inventions to be in the United States, as required by contracts between the employer and the United States or any of its agencies.
Section 2872. If an employment agreement entered into after January 1, 1980, contains a provision requiring the employee to assign or offer to assign any of his or her rights in any invention to his or her employer, the employer must also, at the time the agreement is made, provide a written notification to the employee that the agreement does not apply to an invention which qualifies fully under the provisions of Section 2870. In any suit or action arising thereunder, the burden of proof shall be on the employee claiming the benefits of its provisions.
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E XHIBIT 2
S ECTION 7 OF THE D EFEND T RADE S ECRETS A CT OF 2016
. . . An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that(A) is made(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. . . . An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual(A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.
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EXHIBIT C
PERMITTED EXTERNAL ACTIVITIES
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Exhibit 10.15
KODIAK SCIENCES INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purposes of the Plan . The Plan is intended to increase stockholder value and the success of the Company by motivating Employees to (i) perform to the best of their abilities and (ii) achieve the Companys objectives.
2. Definitions .
(a) Actual Award means as to any Performance Period, the actual award (if any) payable to a Participant for the Performance Period, subject to the Committees authority under Section 3(d) to modify the award.
(b) Affiliate means any corporation or other entity (including, but not limited to, partnerships and joint ventures) controlled by the Company.
(c) Board means the Board of Directors of the Company.
(d) Bonus Pool means the pool of funds available for distribution to Participants. Subject to the terms of the Plan, the Committee establishes the Bonus Pool (if any) for each Performance Period.
(e) Code means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will include such section or regulation, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(f) Committee means the committee appointed by the Board (pursuant to Section 5) to administer the Plan. Unless and until the Board otherwise determines, the Boards Compensation Committee will administer the Plan and be considered the Committee for purposes of the Plan.
(g) Company means Kodiak Sciences Inc., a Delaware corporation, or any successor thereto.
(h) Disability means a permanent and total disability determined in accordance with uniform and nondiscriminatory standards adopted by the Committee from time to time.
(i) Employee means any executive, officer, or key employee of the Company or of an Affiliate, whether such individual is so employed at the time the Plan is adopted or becomes so employed subsequent to the adoption of the Plan.
(j) Fiscal Year means the fiscal year of the Company.
(k) Participant means as to any Performance Period, an Employee who has been selected by the Committee for participation in the Plan for that Performance Period.
(l) Performance Period means the period of time for the measurement of the performance criteria that must be met to receive an Actual Award, as determined by the Committee in its sole discretion. A Performance Period may be divided into one or more shorter periods if, for example, but not by way of limitation, the Committee desires to measure some performance criteria over 12 months and other criteria over 3 months.
(m) Plan means this Executive Incentive Compensation Plan, as set forth in this instrument (including any appendix attached hereto) and as hereafter amended from time to time.
(n) Target Award means the target award, at 100% of target level performance achievement, payable under the Plan to a Participant for the Performance Period, as determined by the Committee in accordance with Section 3(b).
3. Selection of Participants and Determination of Awards .
(a) Selection of Participants . The Committee, in its sole discretion, will select the Employees who will be Participants for any Performance Period. Participation in the Plan is in the sole discretion of the Committee, on a Performance Period by Performance Period basis. Accordingly, an Employee who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for participation in any subsequent Performance Period or Performance Periods.
(b) Determination of Target Awards . The Committee, in its sole discretion, will establish a Target Award for each Participant (which may be expressed as a percentage of a Participants average annual base salary for the Performance Period or a fixed dollar amount or such other amount or based on such other formula as the Committee determines).
(c) Bonus Pool . Each Performance Period, the Committee, in its sole discretion, may establish a Bonus Pool, which pool may be established before, during or after the applicable Performance Period. Actual Awards will be paid from the Bonus Pool.
(d) Discretion to Modify Awards . Notwithstanding any contrary provision of the Plan, the Committee may, in its sole discretion and at any time, (i) increase, reduce or eliminate a Participants Actual Award, and/or (ii) increase, reduce or eliminate the amount allocated to the Bonus Pool. The Actual Award may be below, at or above the Target Award, in the Committees discretion. The Committee may determine the amount of any increase, reduction or elimination on the basis of such factors as it deems relevant, and will not be required to establish any allocation or weighting with respect to the factors it considers.
(e) Discretion to Determine Criteria . Notwithstanding any contrary provision of the Plan, the Committee, in its sole discretion, will determine the performance goals (if any) applicable to any Target Award (or portion thereof) which may include, without limitation: (i) research and development, (ii) regulatory milestones or regulatory-related goals, (iii) gross margin, (iv) financial milestones, (v) new product or business development, (vi) operating
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margin, (viii) product release timelines or other product release milestones, (ix) publications, (x) cash flow, (xi) procurement, (xii) savings, (xiii) internal structure, (xiv) leadership development, (xv) project, function or portfolio-specific milestones, (xvi) license or research collaboration agreements, (xvii) capital raising, (xviii) initial public offering preparations, (xix) patentability and (xx) individual objectives such as peer reviews or other subjective or objective criteria. As determined by the Committee, the performance goals may be based on generally accepted accounting principles (GAAP) or non-GAAP results and any actual results may be adjusted by the Committee for one-time items or unbudgeted or unexpected items and/or payments of Actual Awards under the Plan when determining whether the performance goals have been met. The goals may be on the basis of any factors the Committee determines relevant, and may be on an individual, divisional, business unit, segment or Company-wide basis. Any criteria used may be measured on such basis as the Committee determines, including but not limited to, as applicable, (A) in absolute terms, (B) in combination with another performance goal or goals (for example, but not by way of limitation, as a ratio or matrix), (C) in relative terms (including, but not limited to, results for other periods, passage of time and/or against another company or companies or an index or indices), (D) on a per-share basis, (E) against the performance of the Company as a whole or a segment of the Company and/or (F) on a pre-tax or after-tax basis. The performance goals may differ from Participant to Participant and from award to award. Failure to meet the goals will result in a failure to earn the Target Award, except as provided in Section 3(d). The Committee also may determine that a Target Award (or portion thereof) will not have a performance goal associated with it but instead will be granted (if at all) in the sole discretion of the Committee.
4. Payment of Awards .
(a) Right to Receive Payment . Each Actual Award will be paid solely from the general assets of the Company. Nothing in this Plan will be construed to create a trust or to establish or evidence any Participants claim of any right other than as an unsecured general creditor with respect to any payment to which he or she may be entitled.
(b) Timing of Payment . Payment of each Actual Award shall be made as soon as practicable after the end of the Performance Period to which the Actual Award relates and after the Actual Award is approved by the Committee, but in no event later than the later of (i) the 15th day of the third month of the Fiscal Year immediately following the Fiscal Year in which the Participants Actual Award is first no longer subject to a substantial risk of forfeiture, and (ii) March 15 of the calendar year immediately following the calendar year in which the Participants Actual Award is first no longer subject to a substantial risk of forfeiture. Unless otherwise determined by the Committee, to earn an Actual Award a Participant must be employed by the Company or any Affiliate on the date the Actual Award is paid.
It is the intent that this Plan be exempt from or comply with the requirements of Code Section 409A so that none of the payments to be provided hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to be so exempt or so comply. Each payment under this Plan is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
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(c) Form of Payment . Each Actual Award generally will be paid in cash (or its equivalent) in a single lump sum. The Committee reserves the right, in its sole discretion, to settle an Actual Award with a grant of an equity award under the Companys then-current equity compensation plan, which equity award may have such terms and conditions, including vesting, as the Committee determines in its sole discretion.
(d) Payment in the Event of Death or Disability . If a Participant dies or is terminated due to his or her Disability prior to the payment of an Actual Award the Committee has determined will be paid for a prior Performance Period, the Actual Award will be paid to his or her estate or to the Participant, as the case may be, subject to the Committees discretion to reduce or eliminate any Actual Award otherwise payable.
5. Plan Administration .
(a) Committee is the Administrator . The Plan will be administered by the Committee. The Committee will consist of not less than 2 members of the Board. The members of the Committee will be appointed from time to time by, and serve at the pleasure of, the Board.
(b) Committee Authority . It will be the duty of the Committee to administer the Plan in accordance with the Plans provisions. The Committee will have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (i) determine which Employees will be granted awards, (ii) prescribe the terms and conditions of awards, (iii) interpret the Plan and the awards, (iv) adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside of the United States, (v) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (vi) interpret, amend or revoke any such rules.
(c) Decisions Binding . All determinations and decisions made by the Committee, the Board, and/or any delegate of the Committee pursuant to the provisions of the Plan will be final, conclusive, and binding on all persons, and will be given the maximum deference permitted by law.
(d) Delegation by Committee . The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company.
(e) Indemnification . Each person who is or will have been a member of the Committee will be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any award, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Companys approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she will give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of
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indemnification will not be exclusive of any other rights of indemnification to which such persons may be entitled under the Companys Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
6. General Provisions .
(a) Tax Withholding . The Company (or the Affiliate employing the applicable Employee) will withhold all applicable taxes from any Actual Award, including any federal, state and local taxes (including, but not limited to, the Participants FICA and SDI obligations).
(b) No Effect on Employment or Service . Nothing in the Plan will interfere with or limit in any way the right of the Company (or the Affiliate employing the applicable Employee) to terminate any Participants employment or service at any time, with or without cause. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Affiliates (or between Affiliates) will not be deemed a termination of employment. Employment with the Company and its Affiliates is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a Performance Period such exercise occurs, to terminate any individuals employment with or without cause, and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant.
(c) Participation . No Employee will have the right to be selected to receive an award under this Plan, or, having been so selected, to be selected to receive a future award.
(d) Successors . All obligations of the Company under the Plan, with respect to awards granted hereunder, will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
(e) Nontransferability of Awards . No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution. All rights with respect to an award granted to a Participant will be available during his or her lifetime only to the Participant.
7. Amendment, Termination, and Duration .
(a) Amendment, Suspension, or Termination . The Board or the Committee, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. The amendment, suspension or termination of the Plan will not, without the consent of the Participant, alter or impair any rights or obligations under any Actual Award theretofore earned by such Participant. No award may be granted during any period of suspension or after termination of the Plan.
(b) Duration of Plan . The Plan will commence on the date first adopted by the Board or the Committee, and subject to Section 7(a) (regarding the Boards and/or the Committees right to amend or terminate the Plan), will remain in effect thereafter until terminated.
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8. Legal Construction .
(a) Gender and Number . Except where otherwise indicated by the context, any masculine term used herein also will include the feminine and any feminine term used herein also will include the masculine; the plural will include the singular and the singular will include the plural.
(b) Severability . In the event any provision of the Plan will be held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included.
(c) Requirements of Law . The granting of awards under the Plan will be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(d) Governing Law . The Plan and all awards will be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.
(e) Bonus Plan . The Plan is intended to be a bonus program as defined under U.S. Department of Labor regulation 2510.3-2(c) and will be construed and administered in accordance with such intention.
(f) Captions . Captions are provided herein for convenience only, and will not serve as a basis for interpretation or construction of the Plan.
* * *
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Exhibit 10.16
KODIAK SCIENCES INC.
OUTSIDE DIRECTOR COMPENSATION POLICY
Adopted and approved September 6, 2018
Kodiak Sciences Inc. (the Company ) believes that granting equity and cash compensation to members of its Board of Directors (the Board , and members of the Board, the Directors ) represents an effective tool to attract, retain, and reward Directors who are not employees of the Company (the Outside Directors ). This Outside Director Compensation Policy (the Policy ) formalizes the Companys policy regarding cash compensation and grants of equity to its Outside Directors. Unless otherwise defined in this Policy, any capitalized terms used in this Policy will have the meaning given such term in the Companys 2018 Equity Incentive Plan, as amended from time to time (the Plan ), or if the Plan is no longer in use at the time of an equity award, the meaning given such term or any similar term in the equity plan then in place under which such equity award is granted. Each Outside Director will be solely responsible for any tax obligations incurred by such Outside Director as a result of the equity and cash payments such Outside Director receives under this Policy.
This Policy will be effective as of the effective date of the registration statement in connection with the initial public offering of the Companys securities (such date, the Effective Date ).
1. Cash Compensation
Annual Cash Retainer
Each Outside Director will be paid an annual cash retainer of $40,000. There are no per-meeting attendance fees for attending Board meetings or meetings of any committee of the Board.
Non-Executive Chair, Committee Chair and Committee Member Annual Cash Retainer
Effective as of the Registration Date, each Outside Director who serves as the non-executive Chair of the Board, Lead Director, chair of a committee of the Board, or member of a committee of the Board will be eligible to earn additional annual cash retainers as follows:
Non-Executive Chair of the Board: |
$ | 30,000 | ||
Lead Director: |
$ | 24,000 | ||
Chair of Audit Committee: |
$ | 20,000 | ||
Member of Audit Committee: (excluding Committee Chair) |
$ | 9,000 | ||
Chair of Compensation Committee: |
$ | 13,000 | ||
Member of Compensation Committee: (excluding Committee Chair) |
$ | 6,500 | ||
Chair of Nominating and Governance Committee: |
$ | 9,000 | ||
Member of Nominating and Governance Committee: (excluding Committee Chair) |
$ | 5,000 |
Payment
Each annual cash retainer under this Policy will be paid quarterly in arrears on a prorated basis to each Outside Director who has served in the relevant capacity at any point during the immediately preceding fiscal quarter, and such payment shall be made no later than thirty (30) days following the end of such immediately preceding fiscal quarter. For purposes of clarification, an Outside Director who has served as an Outside Director, as a member of an applicable committee (or chair thereof) during only a portion of the relevant Company fiscal quarter will receive a pro-rated payment of the quarterly payment of the applicable annual cash retainer(s), calculated based on the number of days during such fiscal quarter such Outside Director has served in the relevant capacities. For purposes of clarification, an Outside Director who has served as an Outside Director, as a member of an applicable committee (or chair thereof), as applicable, from the Effective Date through the end of the fiscal quarter containing the Effective Date (the Initial Period ) will receive a prorated payment of the quarterly payment of the applicable annual cash retainer(s), calculated based on the number of days during the Initial Period that such Outside Director has served in the relevant capacities.
2. Equity Compensation
Outside Directors may receive any Awards (except Incentive Stock Options) under the Plan (or the applicable equity plan in place at the time of grant), including discretionary Awards not covered under this Policy. All grants of Awards to Outside Directors under this Section 2 will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions and all other provisions of the Plan that are not inconsistent with this Policy:
(a) Initial Awards . Subject to Section 11 of the Plan, each person who first becomes an Outside Director on or following the Effective Date automatically will be granted a Nonstatutory Stock Option with a Value of $400,000 (the Initial Award ), which grant will be effective on the first trading date on or after the date on which such person first becomes an Outside Director on or following the Effective Date, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that the number of Shares covered by an Initial Award will be rounded down to the nearest whole Share. Notwithstanding the foregoing, a Director who was an Employee (an Inside Director ) who ceases to be an Inside Director, but who remains a Director, will not receive an Initial Award. Subject to Section 3 below and Section 14 of the Plan, each Initial Award will vest and become exercisable as to 1/3 of the Shares subject to the Initial Award on the one (1)-year anniversary of the date of grant and as to 1/36 th of the Shares subject to the Initial Award on each month thereafter on the same day of the month as the grant date (and if there is no corresponding day, on the last day of the month), in each case, provided that the Outside Director continues to serve as an Outside Director through the applicable vesting date.
(b) Annual Awards . Subject to Section 11 of the Plan, each Outside Director automatically will be granted a Nonstatutory Stock Option (an Annual Award ) with a Value of $150,000; provided that the number of Shares covered by each Annual Award will be rounded down to the nearest whole Share, which grant will be effective on the date of each annual meeting of stockholders (each, an Annual Meeting ), beginning with the first Annual Meeting following the Effective Date, if, as of such Annual Meeting date, he or she will have served on the Board as a Director for at least the preceding six (6) months; provided that any Outside Director who is not continuing as a Director following the applicable Annual Meeting will not receive an Annual Award with respect to such Annual Meeting. Subject to Section 3 below and Section 14 of the Plan, each Annual Award will vest and become exercisable as to one hundred percent (100%) of the Shares subject thereto upon the earlier of the one (1)-year anniversary of the grant date or the day prior to the Companys next Annual Meeting occurring after the grant date, in each case, provided that the Outside Director continues to serve as an Outside Director through the applicable vesting date.
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(c) Value . For purposes of this Policy, Value means the grant date value calculated in accordance with the Black-Scholes option valuation methodology, or such other methodology the Board or Compensation Committee may determine prior to the grant of the stock option becoming effective, as applicable.
(d) No Discretion . No person will have any discretion to select which Outside Directors will be granted any Awards under this Policy or to determine the number of Shares to be covered by such Awards, as applicable (except as provided in Section 7 below).
(e) Terms Applicable to all Options Granted Under this Policy . The per Share exercise price for an Option granted under this Policy will be one hundred percent (100%) of the Fair Market Value on the grant date. The maximum term to expiration of an Option granted under this Policy will be ten (10) years, subject to earlier termination as provided in the Plan.
3. Change in Control
In the event of a Change in Control, and unless otherwise agreed, each Outside Director will fully vest in his or her outstanding Company equity awards, including any Initial Award or Annual Award, provided that the Outside Director continues to be an Outside Director through such date.
4. Expenses
Each Outside Directors reasonable, customary, and properly documented expenses in connection with service on the Board or any committee of the Board will be reimbursed by the Company.
5. Additional Provisions
All provisions of the Plan and form of award agreement approved for use under the Plan not inconsistent with this Policy will apply to Awards granted to Outside Directors.
6. Section 409A
It is the intent of this Policy that this Policy and all payments hereunder be exempt from or otherwise comply with the requirements of Section 409A (as defined below) so that none of the compensation to be provided hereunder will be subject to the additional tax imposed under 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and guidance thereunder, as may be amended from time to time (together, Section 409A ), and any ambiguities or ambiguous terms herein will be interpreted to be so exempt or comply. In no event will cash compensation or expense reimbursement payments under this Policy be paid after the later of (i) 15th day of the 3rd month following the end of the Companys fiscal year in which the compensation is earned or expenses are incurred, as applicable, or (ii) 15th day of the 3rd month following the end of the calendar year in which the compensation is earned or expenses are incurred, as applicable. As such, all payments under this Policy are intended to fall within the short-term deferral exception under Section 409A. In no event will the Company be obligated to reimburse an Outside Director for any taxes imposed or other costs incurred as a result of Section 409A or otherwise because of the receipt of compensation under this Policy.
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7. Revisions
The Board or any committee designated by the Board (a Designated Committee ), may amend, suspend or terminate this Policy at any time and for any reason. This includes, that the Board or a Designated Committee in its discretion may at any time change and otherwise revise the terms of the cash compensation granted under this Policy, including, without limitation, the amount of cash and timing of unearned compensation to be paid on or after the date the Board or a Designated Committee, as applicable determines to make any such change or revision. Any amendment to the terms of any cash compensation granted under the Policy will be effective no earlier than the date such amendment is made. Further, the Board or a Designated Committee in its discretion may at any time change and otherwise revise the terms of Awards granted under this Policy, including, without limitation, the number of Shares subject thereto, the vesting schedule of Awards, and the type of Awards to be granted on or after the date the Board or a Designated Committee, as applicable, determines to make any such change or revision. If, on the date of an Award grant under this Policy, an equity incentive plan other than the Plan is the primary equity incentive plan used by the Company, all references to the Plan in this Policy shall, with respect to such Award, be deemed to refer to the Companys primary equity incentive plan in use at the time of such Award grant, including that references to Section 11 of the Plan shall be deemed to refer to the section(s) of such primary equity incentive plan relating to the per person limits on the number or value of Shares that an Outside Director may receive under such plan during the period specified therein, and references to Section 14 of the Plan shall be deemed to refer to the section(s) of such primary equity incentive plan relating to adjustments to the Shares, dissolution or liquidation or the Company, and/or merger or Change in Control (or similar transactions) of the Company.
Notwithstanding the foregoing, no amendment, alteration, suspension or termination of this Policy will materially impair the rights of an Outside Director with respect to compensation that already has been paid or awarded, unless otherwise mutually agreed between the Outside Director and the Company. Termination of this Policy will not affect the Boards or the Compensation Committees ability to exercise the powers granted to it under the Plan with respect to Awards granted under the Plan pursuant to this Policy prior to the date of such termination.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of Kodiak Sciences Inc. of our report dated April 30, 2018 relating to the financial statements, which appears in this Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 24, 2018