As filed with the Securities and Exchange Commission on , 2013
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONATUS PHARMACEUTICALS INC.
(Exact name of registrant as specified in its charter)
Delaware | 2834 | 20-3183915 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
4365 Executive Dr., Suite 200
San Diego, CA 92121
(858) 558-8130
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Steven J. Mento, Ph.D.
President and Chief Executive Officer
Conatus Pharmaceuticals Inc.
4365 Executive Dr., Suite 200
San Diego, CA 92121
(858) 558-8130
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Scott N. Wolfe, Esq. Cheston J. Larson, Esq. Matthew T. Bush, Esq. Latham & Watkins LLP 12636 High Bluff Dr., Suite 400 San Diego, CA 92130 (858) 523-5400 |
Thomas S. Levato, Esq. Maggie L. Wong, Esq. Goodwin Procter LLP The New York Times Building 620 Eighth Avenue New York, NY 10018 (212) 813-8800 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities To Be Registered |
Proposed Maximum Aggregate Offering Price(1) |
Amount of Registration Fee(2) | ||
Common Stock, $0.0001 par value per share |
$ | $ | ||
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(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. |
(2) | Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 9, 2013
PRELIMINARY PROSPECTUS
Shares
Common Stock
$ per share
This is the initial public offering of Conatus Pharmaceuticals Inc. We are offering shares of our common stock. Prior to this offering, there has been no public market for our common stock. We estimate that the initial public offering price will be between $ and $ per share.
We have applied to list our common stock on The NASDAQ Global Market under the symbol CNAT.
We are an emerging growth company as defined by the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our common stock involves a high degree of risk. See Risk Factors beginning on page 8.
Per Share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ |
We have granted the underwriters a 30-day option to purchase a total of up to additional shares of common stock on the same terms and conditions set forth above.
The underwriters expect to deliver shares of common stock to purchasers on , 2013.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Stifel |
Piper Jaffray |
JMP Securities
SunTrust Robinson Humphrey
The date of this prospectus is , 2013.
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Material United States Federal Income Tax Consequences to Non-U.S. Holders of Common Stock |
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F-1 |
Until , 2013 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industrys future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Risk Factors. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See Special Note Regarding Forward-Looking Statements.
We use our registered trademark, CONATUS PHARMACEUTICALS, in this prospectus. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this prospectus appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.
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. You should read this entire prospectus carefully, especially the section in this prospectus entitled Risk Factors beginning on page 8 and our financial statements and the related notes thereto appearing at the end of this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to we, us, our, our company and Conatus refer to Conatus Pharmaceuticals Inc.
Overview
Our Company
We are a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease. We are developing our lead compound, emricasan, for the treatment of patients with chronic liver disease and acute exacerbations of chronic liver disease. To date, emricasan has been studied in over 500 subjects in ten clinical trials. In a randomized Phase 2b clinical trial in patients with liver disease, emricasan demonstrated a statistically significant, consistent, rapid and sustained reduction in elevated levels of two key biomarkers of inflammation and cell death, alanine aminotransferase, or ALT, and cleaved Cytokeratin 18, or cCK18, respectively, both of which are implicated in the severity and progression of liver disease. Our initial development strategy targets indications for emricasan with high unmet clinical need in orphan patient populations, such as patients with acute-on-chronic liver failure, or ACLF, chronic liver failure, or CLF, and patients who have developed liver fibrosis post-orthotopic liver transplant due to Hepatitis C virus infection, or HCV-POLT. We expect to initiate a Phase 2b ACLF trial and a Phase 3 HCV-POLT trial in the second half of 2013 and a Phase 2b CLF trial in the second half of 2014.
Emricasan is a first-in-class, orally active caspase protease inhibitor designed to reduce the activity of enzymes that mediate inflammation and cell death, or apoptosis. We believe that by reducing the activity of these enzymes, emricasan has the potential to interrupt the progression of liver disease. We have observed compelling preclinical and clinical trial results that suggest emricasan may have clinical utility in slowing progression of liver diseases regardless of the original cause of the disease. In particular, we have completed two placebo-controlled Phase 2 trials in patients with liver disease showing statistically significant reductions in ALT levels that occur rapidly, within as little as one day after initiation of therapy, and are maintained throughout the treatment period. In our 204-patient Phase 2b trial, we also measured cCK18, an important biomarker of apoptosis and disease severity. Statistically significant reductions in cCK18 were demonstrated in this trial as early as three hours post-dosing and were maintained for the duration of dosing. Emricasan has been generally well-tolerated in all of the clinical studies.
Overview of Liver Disease
Liver disease can result from injury to the liver caused by a variety of insults, including Hepatitis C virus, or HCV, Hepatitis B virus, obesity, chronic excessive alcohol use or autoimmune diseases. Regardless of the underlying cause of the disease, there are important similarities in the disease progression including increased inflammatory activity and excessive liver cell apoptosis, which if unresolved leads to fibrosis. Fibrosis, if allowed to progress, will lead to cirrhosis, or excessive scarring of the liver, which may result in reduced liver function. Some patients with liver cirrhosis have a partially functioning liver and may appear asymptomatic for long periods of time, which is referred to as compensated liver disease. When the liver is unable to perform its normal functions this is referred to as decompensated liver disease. ACLF occurs in patients who have compensated or decompensated cirrhosis but are in relatively stable condition until an acute event sets off a rapid worsening of liver function. Patients with CLF suffer from continual disease progression which may eventually lead them to require orthotopic liver transplantation. Patients with HCV who receive orthotopic liver transplants, in which the diseased liver is replaced by a donor liver, will have their HCV infections recur. Many of these HCV-POLT patients will experience accelerated development of fibrosis and progression to cirrhosis of the transplanted liver due to the recurrence of HCV.
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The National Institutes of Health estimates that 5.5 million Americans have chronic liver disease or cirrhosis, and liver disease is the twelfth leading cause of death in the United States. According to the European Association for the Study of the Liver, 29 million Europeans have chronic liver disease and liver disease represents approximately two percent of deaths annually. In the United States, more than 5,000 liver transplants are performed in adults and more than 500 in children annually, with approximately 17,000 subjects still awaiting transplant. We are planning to study the effectiveness of emricasan in defined subsets of patients with liver disease. ACLF, CLF and HCV-POLT are potential orphan indications in both the United States and European Union, or EU. We estimate that the target populations for emricasan in these indications in the United States and the EU are approximately 150,000 ACLF patients, 10,000 CLF patients and 50,000 HCV-POLT patients.
Clinical Development Plans
We have designed a comprehensive clinical program to demonstrate the therapeutic benefit of emricasan across the spectrum of fibrotic liver disease. We plan to study emricasan in patients with rapidly progressing fibrosis (HCV-POLT) as well as in patients with established liver cirrhosis and decompensated disease (ACLF and CLF).
(1) | This trial is currently designated a Phase 3 registration study in the EU and a Phase 2b study in the United States. |
ACLF
We plan to initiate a 60-patient Phase 2b dose ranging clinical trial in ACLF patients in the United Kingdom in the second half of 2013. The primary objective in this 28-day dosing study will be to evaluate the pharmacokinetics and pharmacodynamics together with the safety of emricasan in this patient population. We also plan to measure time to clinical worsening, or TTCW, which is defined as the first occurrence of liver transplant, progression to next organ failure or death. We anticipate TTCW will be the primary efficacy endpoint for our planned Phase 3 studies in ACLF and our planned Phase 2b study in CLF. Changes in ALT, aspartate aminotransferase, or AST, cCK18 and the components of the Model for End-Stage Liver Disease, or MELD score (a scoring system for assessing the severity of chronic liver disease), will also be measured in the study. We anticipate results from the trial will be available during the first half of 2014 and we expect the data from this trial will be used in support of our planned end of Phase 2b meetings with both U.S. and EU regulatory authorities to finalize the protocol for our planned Phase 3 trial in ACLF.
CLF
We plan to initiate an approximately 100-patient Phase 2b study in patients with CLF in the second half of 2014 after completion of the ACLF Phase 2b trial. It is expected that the endpoints in this study will include TTCW as well as changes in ALT, AST and cCK18 levels. The data from the ACLF dose ranging study is expected to serve as the basis for dose selection in this study.
HCV-POLT
We are planning a 260-patient, randomized, double-blind, placebo-controlled trial in the HCV-POLT population that we expect may serve as a single Phase 3 registration study to support a marketing authorization application filing in the EU. This study is designed to demonstrate emricasans ability to stabilize or slow the
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progression of liver fibrosis. If emricasan demonstrates the ability to halt the progression of fibrosis, we believe this could serve as a basis to study emricasan in additional indications in liver disease in the future. In addition, the safety data from this study will be part of the overall safety database required for approval of emricasan in other indications. The study will be a two-year dosing study with a three-year follow up. The primary endpoint will be liver histology, specifically the presence or absence of disease progression as measured by the standard Ishak Fibrosis Score, which stages the severity of fibrosis and/or cirrhosis on a 0-6 scale. Changes in ALT, AST and cCK18 will also be measured in this study. This study is currently designated as Phase 3 in the EU and Phase 2b in the United States. We expect to initiate this trial in the second half of 2013.
Our Team
Our management team is comprised of the former senior executives of Idun Pharmaceuticals Inc., or Idun, and our Chief Medical Officer was the clinical program leader for emricasan during its development at Pfizer Inc. At Idun, these senior executives discovered and led the development of emricasan, Iduns lead asset, which was then known as IDN-6556, until the company was sold to Pfizer in July 2005 for approximately $298 million. We acquired the global rights to emricasan from Pfizer, where it was known as PF-3491390, in July 2010. At both Idun and Pfizer, emricasan was being developed for the treatment of liver fibrosis. As a result of our collective experience, we believe we can successfully develop emricasan for the treatment of acute-on-chronic and chronic liver diseases, including ACLF, CLF, and HCV-POLT.
Our Strategy
Our strategy is to develop and commercialize medicines to treat liver disease and associated fibrotic indications in areas of high unmet medical need. The key elements of our strategy are to:
| develop emricasan as a treatment for liver diseases in orphan patient populations; |
| pursue accelerated pathways for regulatory approval in the United States and EU; |
| build our own sales and marketing capabilities to commercialize emricasan for indications that target orphan patient populations in North America and Europe; and |
| evaluate strategic partnerships to maximize the commercial potential of emricasan. |
Risks Related to Our Business
Our ability to implement our business strategy is subject to numerous risks, as more fully described in the section entitled Risk Factors immediately following this prospectus summary. These risks include, among others:
| Our business is dependent on the success of a single drug candidate, emricasan, which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales. |
| Emricasan was the subject of a clinical hold imposed by the U.S. Food and Drug Administration, or FDA, while under development by Pfizer due to a preclinical observation. Although the clinical hold has been lifted, any adverse side effects or other safety risks associated with emricasan could delay or preclude approval of the drug candidate, cause us to suspend or discontinue our clinical trials or limit the commercial profile of emricasan. |
| Clinical drug development involves uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results. |
| The FDA regulatory approval process is lengthy and time-consuming, and if we experience significant delays in the clinical development and regulatory approval of emricasan, or we are unable to obtain regulatory approval of emricasan, our business will be substantially harmed. |
| We rely on third parties to conduct our clinical trials and to manufacture and supply emricasan. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize emricasan and our business could be substantially harmed. |
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| We have a limited operating history, have incurred significant operating losses since our inception, including an accumulated deficit of $58.8 million as of December 31, 2012, and anticipate that we will continue to incur losses for the foreseeable future. |
| We have not generated any revenues to date from product sales, and we may never achieve or sustain profitability. |
| If we fail to obtain additional financing, we may be unable to complete the development and commercialization of emricasan. |
| If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market. |
Corporate Information
We were incorporated under the laws of the state of Delaware in 2005. Our principal executive offices are located at 4365 Executive Dr., Suite 200, San Diego, California 92121, and our telephone number is (858) 558-8130. Our website address is www.conatuspharma.com. The information contained in, or accessible through, our website does not constitute part of this prospectus.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| being permitted to present only two years of audited financial statements and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations in this prospectus; |
| not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; |
| reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and |
| exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, which such fifth anniversary will occur in 2018. However, if certain events occur prior to the end of such five-year period, including if we become a large accelerated filer, our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
We have elected to take advantage of certain of the reduced disclosure obligations in this registration statement and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
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THE OFFERING
Common stock offered by us |
shares (or shares if the underwriters exercise their option to purchase additional shares in full) |
Common stock to be outstanding after this offering |
shares (or shares if the underwriters exercise their option to purchase additional shares in full) |
Use of proceeds |
We intend to use the net proceeds of this offering to fund the clinical development of emricasan and related regulatory filings in the United States and the European Union, and to fund working capital and for general corporate purposes. See Use of Proceeds on page 37 for a description of the intended use of proceeds from this offering. |
Offering price |
$ per share |
Risk factors |
See Risk Factors beginning on page 8 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock. |
Proposed NASDAQ Global Market symbol |
CNAT |
The number of shares of our common stock to be outstanding after this offering set forth above includes:
| 88,869,942 shares of common stock outstanding as of December 31, 2012, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into 78,911,442 shares of common stock immediately prior to the closing of this offering; and |
| the issuance of shares of common stock as a result of the expected net exercise of outstanding warrants, or the 2010 Warrants, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), which 2010 Warrants will terminate if unexercised prior to the completion of this offering. |
The number of shares of our common stock to be outstanding after this offering set forth above excludes:
| 5,694,500 shares of common stock issuable upon exercise of stock options outstanding as of December 31, 2012, at a weighted average exercise price of $0.10 per share; |
| shares of our common stock reserved for future issuance under our 2013 equity incentive plan, or the 2013 plan, which will become effective immediately prior to the closing of this offering (including 97,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares reserved under the 2013 plan upon its effectiveness); and |
| shares of common stock reserved for future issuance under our 2013 employee stock purchase plan, or ESPP, which will become effective upon the closing of this offering. |
Unless otherwise indicated, this prospectus reflects and assumes the following:
| the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, which will occur immediately prior to the closing of this offering; |
| the automatic conversion of all outstanding shares of our convertible preferred stock into 78,911,442 shares of our common stock immediately prior to the closing of the offering and the resultant reclassification of our convertible preferred stock warrant liability to stockholders equity (deficit) in connection with such conversion; |
| a one-for- reverse stock split of our common stock to be effected before the completion of this offering; |
| no exercise of the outstanding options described above; and |
| no exercise by the underwriters of their option to purchase additional shares of our common stock. |
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth a summary of our consolidated historical financial data as of, and for the periods ended on, the dates indicated. We have derived the consolidated statements of operations data for the years ended December 31, 2011 and 2012 and for the period from July 13, 2005 (inception) to December 31, 2012 from our audited consolidated financial statements included elsewhere in this prospectus. You should read this data together with our audited consolidated financial statements and related notes appearing elsewhere in this prospectus and the sections in this prospectus entitled Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations. Our historical results for any prior period are not necessarily indicative of our future results.
Year Ended December 31, | Period from July 13, 2005 (Inception) to December 31, 2012 |
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2011 | 2012 | |||||||||||
Consolidated Statement of Operations Data: |
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Operating expenses |
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Research and development |
$ | 9,486,619 | $ | 5,528,106 | $ | 40,825,148 | ||||||
General and administrative |
2,874,507 | 3,086,479 | 18,116,592 | |||||||||
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Total operating expenses |
12,361,126 | 8,614,585 | 58,941,740 | |||||||||
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Other income (expense) |
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Interest income |
28,274 | 25,547 | 1,358,750 | |||||||||
Interest expense |
(113,836 | ) | (70,000 | ) | (774,829 | ) | ||||||
Other income (expense) |
(4,439 | ) | 1,358 | 241,399 | ||||||||
Other financing income (expense) |
454,547 | (91,559 | ) | (691,089 | ) | |||||||
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Total other income (expense) |
364,546 | (134,654 | ) | 134,231 | ||||||||
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Net loss |
$ | (11,996,580 | ) | $ | (8,749,239 | ) | $ | (58,807,509 | ) | |||
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Net loss per share attributable to common stockholders, basic and diluted(1) |
$ | (1.44 | ) | $ | (1.04 | ) | ||||||
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Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted(1) |
8,346,134 | 8,389,885 | ||||||||||
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Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1) |
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Weighted average shares outstanding used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1) |
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(1) | See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts. |
As of December 31, 2012 | ||||||||
Actual | Pro Forma(1) |
Pro Forma
As Adjusted(1)(2) | ||||||
(unaudited) | ||||||||
Consolidated Balance Sheet Data: |
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Cash, cash equivalents and short-term investments |
$ | 8,025,564 | ||||||
Working capital |
6,688,847 | |||||||
Total assets |
8,145,747 | |||||||
Convertible preferred stock warrant liability |
160,345 | |||||||
Note payable |
1,000,000 | |||||||
Convertible preferred stock |
63,908,372 | |||||||
Total stockholders (deficit) equity |
(58,335,871 | ) |
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(1) | Gives effect to: |
| the automatic conversion of all of our outstanding shares of convertible preferred stock as of December 31, 2012 into an aggregate of 78,911,442 shares of common stock and the resultant reclassification of our convertible preferred stock warrant liability to stockholders equity (deficit) in connection with such conversion; and |
| the issuance of shares of common stock as a result of the expected net exercise of the 2010 Warrants in connection with the completion of this offering, assuming an initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, which 2010 Warrants will terminate if unexercised prior to the completion of this offering. |
(2) | Gives further effect to the issuance and sale of shares of common stock in this offering at the assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page 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 $ per share would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, working capital, total assets and total stockholders equity (deficit) by approximately $ , 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. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) each of cash, cash equivalents and short-term investments, working capital, total assets and total stockholders equity (deficit) by approximately $ . The pro forma information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could 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 also may impair our business operations.
Risks Related to Our Business and Industry
Our business is dependent on the success of a single drug candidate, emricasan, which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales.
Our future success depends on our ability to obtain regulatory approval for, and then successfully commercialize our only drug candidate, emricasan. We have not completed the development of any drug candidates, we currently generate no revenues from sales of any drugs, and we may never be able to develop a marketable drug. Emricasan will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenues from product sales. We are not permitted to market or promote emricasan before we receive regulatory approval from the U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory authorities, and we may never receive such regulatory approvals. Our clinical development plan for emricasan includes a Phase 2b clinical trial in patients with acute-on-chronic liver failure, or ACLF, a Phase 2b clinical trial in patients with chronic liver failure, or CLF, and a Phase 3 clinical trial in patients who have developed liver fibrosis post-orthotopic liver transplant due to Hepatitis C virus infection, or HCV-POLT. While the HCV-POLT study is designated a Phase 3 registration study in the European Union, or the EU, and based on our discussions with regulatory authorities in the United Kingdom and Germany, we believe it will support the filing of a marketing authorization application, or MAA, in the EU upon completion, it is designated a Phase 2b study in the United States. We plan to seek further discussions with the FDA to determine if the HCV-POLT trial may be used to support the filing of a new drug application, or NDA, in the United States. We cannot guarantee that regulatory authorities in the EU will agree that our Phase 3 HCV-POLT study will qualify as a single registration study in support of an MAA or that the FDA will recognize the results from the HCV-POLT trial in support of an NDA filing in the United States. We expect to initiate the Phase 2b ACLF trial and the Phase 3 HCV-POLT trial in the second half of 2013 and the Phase 2b CLF trial in the second half of 2014. There is no guarantee that these trials will commence or be completed on time or at all, and the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials. Even if such regulatory authorities agree with the design and implementation of our clinical trials, we cannot guarantee you that such regulatory authorities will not change their requirements in the future. In addition, even if the 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 emricasan 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, approval of emricasan may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of emricasan.
We cannot anticipate when or if we will seek regulatory review of emricasan for any indication. We have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreign authorities. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidates safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and may not be obtained. We have not received marketing
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approval for any drug candidate, and we cannot be certain that emricasan will be successful in clinical trials or receive regulatory approval for any indication. If we do not receive regulatory approvals for and successfully commercialize emricasan on a timely basis or at all, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market emricasan, our revenues will be dependent, in part, on our ability to commercialize emricasan as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for the treatment of ACLF, CLF or HCV-POLT are not as significant as we estimate, our business and prospects will be harmed.
Emricasan was the subject of a clinical hold imposed by the FDA while under development by Pfizer Inc. due to a preclinical observation. Although the clinical hold has been lifted, any adverse side effects or other safety risks associated with emricasan could delay or preclude approval of the drug candidate, cause us to suspend or discontinue our clinical trials or limit the commercial profile of emricasan.
When we acquired emricasan from Pfizer in 2010, emricasan was on clinical hold in the United States due to an observation of inflammatory infiltrates in mice that Pfizer saw in a preclinical study and reported to the FDA. Pfizer performed additional preclinical studies attempting to characterize the nature of the inflammatory infiltrates, but did not carry out a formal carcinogenicity study to evaluate whether or not the infiltrates progressed to cancer. These infiltrates observed in mice were not observed in any other species. In 2008, Pfizer stopped work on the program. After acquiring emricasan, we conducted a thorough internal review of these studies, commissioned several independent experts to review the data and, based on guidance from the FDA, conducted a 6-month carcinogenicity study in the Tg.rasH2 transgenic mouse model, which is known to be predisposed toward tumor development. There was no evidence of drug-related tumorgenicity in our carcinogenicity study, and after further discussions with the FDA, we were cleared in January 2013 to proceed with our planned HCV-POLT trial, formally lifting emricasan from clinical hold in the United States. Emricasan was never placed on clinical hold outside the United States. We cannot assure you that emricasan will not be placed on clinical hold in the future for similar or unrelated reasons.
In addition, undesirable side effects caused by emricasan could result in the delay, suspension or termination of our clinical trials by us, the FDA or other regulatory authorities or institutional review boards, or IRBs, for a number of reasons. To date, over 500 subjects have received emricasan in Phase 1 and Phase 2 clinical trials. The most commonly reported treatment-related adverse events in emricasan-treated subjects were upper abdominal pain, dizziness, headache, fatigue, nausea and diarrhea. Although most of the adverse events reported in relation to emricasan in these trials were mild to moderate, results of our anticipated future trials could reveal a high and unacceptable severity and prevalence of these or other side effects, including, potentially, more severe side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of emricasan for any or all targeted indications. In addition, the drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Even if regulatory authorities granted approval of emricasan, if adverse events caused regulatory authorities to impose a restrictive label or if physicians perceptions of emricasans safety caused them to limit their use of the drug, our ability to generate sufficient sales of emricasan could be limited. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.
Clinical drug development involves uncertain outcomes, and results of earlier studies and trials may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of emricasan may not be predictive of the results of later-stage clinical trials. Drug candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits 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 safety profiles, notwithstanding promising results in earlier trials.
Emricasan has been the subject of six Phase 1 and four Phase 2 clinical trials. Although we believe emricasan has demonstrated evidence of a beneficial effect in patients with chronic liver disease independent of the cause of
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disease, we are now seeking to evaluate emricasan in targeted indications within liver disease, including certain indications for which the safety and efficacy of emricasan have not been previously evaluated. Specifically, we expect to initiate a Phase 2b ACLF trial and a Phase 3 HCV-POLT trial in the second half of 2013 and a Phase 2b CLF trial in the second half of 2014. The development program for emricasan to date has focused primarily on the treatment of HCV patients and the evaluation of the drug candidate in liver disease generally. We cannot be certain that any of our planned clinical trials will be successful, and failure in one indication may have negative consequences for the development of emricasan for other indications. For example, any safety concerns observed in our ACLF trials could limit the prospects for regulatory approval for another indication such as HCV-POLT or CLF. Any such failure may harm our business, prospects and financial condition.
The FDA regulatory approval process is lengthy and time-consuming, and if we experience significant delays in the clinical development and regulatory approval of emricasan, our business will be substantially harmed.
We may experience delays in commencing and completing clinical trials of emricasan. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Although we are targeting the initiation of a Phase 2b ACLF trial and a Phase 3 HCV-POLT trial in the second half of 2013 and a Phase 2b CLF trial in second half of 2014, these planned trials may be delayed for a variety of reasons, including delays related to:
| the availability of financial resources for us to commence and complete our planned trials; |
| reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| obtaining IRB approval at each clinical trial site; |
| recruiting suitable patients to participate in a trial; |
| having patients complete a trial or return for post-treatment follow-up; |
| clinical trial sites deviating from trial protocol or dropping out of a trial; |
| adding new clinical trial sites; or |
| manufacturing sufficient quantities of our drug candidate for use in clinical trials. |
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians and patients perceptions as to the potential advantages of the drug candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. In addition, significant numbers of patients who enroll in our clinical trials may drop out during the trials as a result of being offered a liver transplant in the case of ACLF and CLF patients or curative therapy for HCV infection in the case of HCV-POLT patients, or otherwise. We believe we have appropriately accounted for such increased risk of dropout rates in our trials when determining expected clinical trial timelines, but we cannot assure you that our assumptions are correct, or that we will not experience higher numbers of dropouts than anticipated, which would result in the delay of completion of such trials beyond our expected timelines.
We could encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of emricasan in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the IRBs in the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or by the FDA or other regulatory authorities 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 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 drug candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion of, any clinical trial of emricasan, the commercial prospects for emricasan will be harmed, and our ability to generate product revenues will be delayed. In addition, any delays in completing our
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clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly. Furthermore, 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 emricasan.
If we are unable to obtain regulatory approval of emricasan, we will not be able to commercialize this drug candidate and our business will be adversely impacted.
We have not obtained regulatory approval for any drug candidate. If we fail to obtain regulatory approval to market emricasan, our only drug candidate, we will be unable to sell emricasan, which will significantly impair our ability to generate any revenues. To receive approval, we must, among other things, demonstrate with substantial evidence from clinical trials that the drug candidate is both safe and effective for each indication for which approval is sought, and failure can occur in any stage of development. Satisfaction of the approval requirements typically takes several years and the time and money needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. We have not commenced any Phase 3 trials of emricasan to date, and we cannot predict if or when our planned clinical trials will generate the data necessary to support an NDA, and if or when we might receive regulatory approvals for emricasan.
Emricasan could fail to receive regulatory approval for many reasons, including the following:
| the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; |
| we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that emricasan is safe and effective for any of its proposed indications; |
| the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval; |
| we may be unable to demonstrate that emricasans clinical and other benefits outweigh its safety risks; |
| the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
| the data collected from clinical trials of emricasan may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of an NDA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere; |
| the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and |
| the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failure to obtain regulatory approval to market emricasan, which would significantly harm our business, prospects, financial condition and results of operations. In addition, even if we were to obtain approval, regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials or the imposition of a risk evaluation and mitigation strategy, or REMS, requiring substantial additional post-approval safety measures. Moreover, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use. In such event, our ability to generate revenues would be greatly reduced and our business would be harmed.
Even if we obtain and maintain regulatory approval for emricasan in one jurisdiction, we may never obtain regulatory approval for emricasan in any other jurisdiction, which would limit our market opportunities and adversely affect our business.
Obtaining and maintaining regulatory approval for emricasan in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction. For example, even if the FDA grants marketing approval for a drug candidate, comparable regulatory authorities in foreign countries must also
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approve the manufacturing, marketing and promotion of the drug candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a drug candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products is also subject to approval. We expect to submit an MAA to the European Medicines Agency, or EMA, for approval of emricasan in the EU. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthy and expensive process and the EMA has its own procedures for approval of drug candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product labeling, require a REMS or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and the EU also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries. 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. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any drug candidate may be withdrawn. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of emricasan will be harmed, which would adversely affect our business, prospects, financial condition and results of operations.
Even if we receive regulatory approval for emricasan, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, emricasan, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with emricasan.
Any regulatory approvals that we receive for emricasan may be subject to limitations on the approved indicated uses for which emricasan may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the drug candidate. The FDA may also require a REMS in order to approve emricasan, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves emricasan, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for emricasan will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs, and current good clinical practices, or cGCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with emricasan, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
| restrictions on the marketing or manufacturing of emricasan, withdrawal of the product from the market, or voluntary or mandatory product recalls; |
| fines, warning letters or holds on clinical trials; |
| refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals; |
| product seizure or detention, or refusal to permit the import or export of emricasan; and |
| injunctions or the imposition of civil or criminal penalties. |
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The FDAs and other regulatory authorities policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of emricasan. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
Even if we obtain regulatory approval for emricasan, the product may not gain market acceptance among physicians, patients, tertiary care centers, transplant centers and others in the medical community.
If emricasan is approved for commercialization, its acceptance will depend on a number of factors, including:
| the clinical indications for which emricasan is approved; |
| physicians, major operators of tertiary care centers and transplant centers and patients considering emricasan as a safe and effective treatment; |
| the potential and perceived advantages of emricasan over alternative treatments; |
| the prevalence and severity of any side effects; |
| product labeling or product insert requirements of the FDA or other regulatory authorities; |
| the timing of market introduction of emricasan as well as competitive products; |
| the cost of treatment in relation to alternative treatments; |
| the availability of adequate reimbursement and pricing by third-party payors and government authorities; |
| relative convenience and ease of administration; and |
| the effectiveness of our sales and marketing efforts. |
If emricasan is approved but fails to achieve market acceptance among physicians, patients, or others in the medical community, we will not be able to generate significant revenues, which would have a material adverse effect on our business, prospects, financial condition and results of operations.
Coverage and reimbursement may be limited or unavailable in certain market segments for emricasan, which could make it difficult for us to sell emricasan profitably.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and the amount of reimbursement. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payors determination that use of a product is:
| a covered benefit under its health plan; |
| safe, effective and medically necessary; |
| appropriate for the specific patient; |
| cost-effective; and |
| neither experimental nor investigational. |
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We intend to seek approval to market emricasan in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for emricasan, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the EU, the pricing of prescription pharmaceuticals and biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval for a drug candidate. In addition, market acceptance and sales of emricasan will depend significantly on the
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availability of adequate coverage and reimbursement from third-party payors for emricasan and may be affected by existing and future health care reform measures.
In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methodology for many products under Medicare in the United States. This has resulted in lower rates of reimbursement. In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, collectively, the Healthcare Reform Act, was enacted. The Healthcare Reform Act, among other things, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees on manufacturers of certain branded prescription drugs, requires manufacturers to participate in a discount program for certain outpatient drugs under Medicare Part D, and promotes programs that increase the federal governments comparative effectiveness research, which will impact existing government healthcare programs and will result in the development of new programs. An expansion in the governments role in the U.S. healthcare industry may further lower rates of reimbursement for pharmaceutical products.
Other legislative changes have been proposed and adopted in the United States since the Healthcare Reform Act was enacted. On August 2, 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 up to 2% per fiscal year. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into effect. The ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
| the demand for emricasan, if we obtain regulatory approval; |
| our ability to set a price that we believe is fair for our products; |
| our ability to generate revenues and achieve or maintain profitability; |
| the level of taxes that we are required to pay; and |
| the availability of capital. |
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell emricasan, we may not be able to generate product revenues.
We currently do not have a commercial organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize emricasan, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We expect that the majority of all ACLF, CLF and HCV-POLT patients will be treated at tertiary care centers and transplant centers and therefore can be addressed with a targeted sales force. We intend to build our own commercial infrastructure in North America and the EU to target these centers, but will evaluate
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opportunities to partner with pharmaceutical companies that have established sales and marketing capabilities to commercialize emricasan in ACLF, CLF and HCV-POLT outside of North America and Europe. We may also partner with a pharmaceutical company that has global capabilities to evaluate emricasan in non-orphan indications for which we believe it may also be effective.
The establishment and development of our own sales force or the establishment of a contract sales force to market emricasan will be expensive and time-consuming and could delay any commercial launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales and marketing efforts of emricasan. To the extent we rely on third parties to commercialize emricasan, if approved, we may have little or no control over the marketing and sales efforts of such third parties and our revenues from product sales may be lower than if we had commercialized emricasan ourselves. In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization, we would not be able to commercialize emricasan.
A variety of risks associated with marketing emricasan internationally could materially adversely affect our business.
We plan to seek regulatory approval for emricasan outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
| differing regulatory requirements in foreign countries; |
| the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally; |
| unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; |
| economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| foreign taxes, including withholding of payroll taxes; |
| foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; |
| difficulties staffing and managing foreign operations; |
| workforce uncertainty in countries where labor unrest is more common than in the United States; |
| potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations; |
| 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; |
| production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
| business interruptions resulting from geo-political actions, including war and terrorism. |
These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.
If we fail to develop and commercialize any other drug candidates, we may be unable to grow our business.
Although we currently have no plans to do so, we may seek to develop and commercialize drug candidates in addition to emricasan, which is currently our only drug candidate. If we decide to pursue the development and commercialization of any additional drug candidates, we may be required to invest significant resources to acquire or in-license the rights to such drug candidates or to conduct drug discovery activities. In addition, any other drug candidates will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies, extensive clinical trials and approval by the FDA and applicable foreign regulatory authorities. All drug candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the drug candidate will not be shown to be sufficiently safe and/or
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effective for approval by regulatory authorities. In addition, we cannot assure you that we will be able to acquire, discover or develop any additional drug candidates, or that any additional drug candidates we may develop will be approved, manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives. Research programs to identify new drug candidates require substantial technical, financial and human resources whether or not we ultimately identify any candidates. If we are unable to develop or commercialize emricasan or any other drug candidates, our business and prospects will suffer.
We cannot be certain that emricasan or any other drug candidates that we develop will produce commercially viable drugs that safely and effectively treat liver or other diseases. Even if we are successful in completing preclinical and clinical development and receiving regulatory approval for one commercially viable drug for the treatment of one disease, we cannot be certain that we will also be able to develop and receive regulatory approval for other drug candidates for the treatment of other forms of that disease or other diseases. If we fail to develop a pipeline of potential drug candidates other than emricasan, we will not have any prospects for commercially viable drugs should our efforts to develop and commercialize emricasan be unsuccessful, and our business prospects would be harmed significantly.
We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we believe that we hold a leading position in our understanding of caspase inhibition related to liver disease, our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products that are more effective or less costly than emricasan. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
There are currently no therapeutic products approved for the treatment of ACLF, CLF or HCV-POLT. There are a number of marketed therapeutics used in each of these diseases to try to remove the underlying cause of the disease and prevent further liver injury. For example, if the liver damage is a result of Hepatitis B virus or HCV infection, marketed antiviral medications may be used to treat the virus that led to liver damage. If the liver damage is a result of alcoholic hepatitis, marketed alcohol addiction drugs may be used. If the liver damage is a result of obesity, diet and exercise may be prescribed along with marketed therapeutics. If the liver damage is a result of non-alcoholic steatohepatitis, or NASH, marketed drugs such as insulin sensitizers (e.g., metformin), antihyperlipidemic agents (e.g., gemfibrozil), pentoxifylline and ursodiol may be used, although none of these are approved for NASH. In addition to the marketed drugs for those indications, there are drugs in development for each of these indications. Although these marketed therapies and those in development may be efficacious, all of them take time to show an effect and as long as the underlying conditions persist there will continue to be damage to the liver. Emricasan is the only therapeutic we are aware of that is being developed specifically to reduce the level of apoptosis in the liver and as a result it may be used with these other therapies. Our estimates of disease prevalence consider the presence of these other treatments.
In addition, the HCV landscape is expected to evolve dramatically over the next five to ten years with the introduction of new interferon-free regimens, which are expected to reach the market as soon as 2015, and next generation interferon-free regimens, which may reach the market by as early as 2016, with greater efficacy and tolerability over the current antiviral therapies. Based on market research we commissioned, we estimate that
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treatment rates pre-transplantation would need to be 100% and cure rates would have to exceed 97% before the supply of liver transplants would outstrip the need for transplant on an annual basis.
Even if we obtain regulatory approval for emricasan, the availability and price of our competitors products could limit the demand, and the price we are able to charge, for emricasan. We will not achieve our business plan if the acceptance of emricasan is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to emricasan, or if physicians switch to other new drug products or choose to reserve emricasan for use in limited circumstances. Our inability to compete with existing or subsequently introduced drug products would have a material adverse impact on our business, prospects, financial condition and results of operations.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make emricasan less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business.
We may not be able to obtain orphan drug exclusivity for emricasan for any indication.
In the United States, under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition. Such diseases and conditions are those that affect fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting an NDA. If the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by that agency. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but it can lead to financial incentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug marketing exclusivity for a period of seven years. Orphan drug marketing exclusivity generally prevents the FDA from approving another application, including a full NDA, to market the same drug or biological product for the same indication for seven years, except in limited circumstances, including if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. For purposes of small molecule drugs, the FDA defines same drug as a drug that contains the same active chemical entity and is intended for the same use as the drug in question. A designated orphan drug may not receive orphan drug marketing exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Orphan drug marketing exclusivity rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
The criteria for designating an orphan medicinal product in the EU are similar in principle to those in the United States. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic
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indication. The application for orphan drug designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan drug designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The ten-year market exclusivity in the EU may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:
| The second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior; |
| The applicant consents to a second orphan medicinal product application; or |
| The applicant cannot supply enough orphan medicinal product. |
We have applied for orphan drug designation for emricasan for the treatment of HCV-POLT in the United States and the EU, but we have not yet received responses from the regulatory bodies in those jurisdictions. We plan to submit applications for orphan drug designations for ACLF in the United States and the EU in the second half of 2013. We cannot assure you that we will be able to obtain orphan drug exclusivity for emricasan in any jurisdiction for the target indications in a timely manner or at all, or that a competitor will not obtain orphan drug exclusivity that could block the regulatory approval of emricasan for several years. If we are unable to obtain orphan drug designation in the United States or the EU, we will not receive market exclusivity which might affect our ability to generate sufficient revenues. If a competitor is able to obtain orphan exclusivity that would block emricasans regulatory approval, our ability to generate revenues would be significantly reduced which would harm our business prospects, financial condition and results of operations.
We may form or seek strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form or seek strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to emricasan and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for emricasan because it may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view emricasan as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to emricasan could delay the development and commercialization of emricasan in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, including our President and Chief Executive Officer, Steven J. Mento, Ph.D., our Senior Vice President, R&D and Chief Scientific Officer, Alfred P. Spada, Ph.D., and our Senior Vice President, Clinical Research, and Chief Medical Officer, Gary C. Burgess, M.B., Ch.B. M.Med. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, prospects, financial condition or results of operations.
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Our scientific team has expertise in many different aspects of drug discovery and development. We conduct our operations at our facility in San Diego, California. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is very intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms. In order to induce valuable employees to remain at Conatus, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options 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.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. 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 these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
Many of the other biotechnology and pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They may also provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we can offer. If we are unable to continue to attract and retain high quality personnel, our ability to advance the development of emricasan and obtain regulatory approval and potentially commercialize this drug candidate will be limited.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of April 30, 2013, we had 16 employees, 14 of whom are full-time. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
| identifying, recruiting, integrating, maintaining and motivating additional employees; |
| managing our internal development efforts effectively, including the clinical and FDA review process for emricasan, while complying with our contractual obligations to contractors and other third parties; and |
| improving our operational, financial and management controls, reporting systems and procedures. |
Our future financial performance and our ability to commercialize emricasan will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. To date, we have used the services of outside vendors to perform tasks including clinical trial management, statistics and analysis, regulatory affairs, formulation development and other drug development functions. Our growth strategy may also entail expanding our group of contractors or consultants to implement these tasks going forward. Because we rely on numerous consultants, effectively outsourcing many key functions of our business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. However, 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 for emricasan 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, or at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize emricasan that we develop and, accordingly, may not achieve our research, development and commercialization goals.
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Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture emricasan and 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 applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of emricasan could be delayed.
Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce emricasan. Our ability to obtain clinical supplies of emricasan could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. Our corporate headquarters is located in California near major earthquake faults and fire zones. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Effective upon completion of this offering, we will adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
If emricasan is approved, we may be subject to healthcare laws, regulation and enforcement. Our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
Although we currently do not have any products on the market, if emricasan is approved, once we begin commercializing emricasan, we may be subject to additional healthcare regulation and enforcement by the
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federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws include, without limitation, state and federal anti-kickback, false claims, privacy and security and physician sunshine laws and regulations. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of emricasan.
We face an inherent risk of product liability as a result of the clinical testing of emricasan and will face an even greater risk if we commercialize any products. For example, we may be sued if emricasan allegedly causes injury or is 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, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of emricasan. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
| decreased demand for emricasan; |
| injury to our reputation; |
| withdrawal of clinical trial participants; |
| initiation of investigations by regulators; |
| costs to defend the related litigation; |
| a diversion of managements time and our resources; |
| substantial monetary awards to trial participants or patients; |
| product recalls, withdrawals or labeling, marketing or promotional restrictions; |
| loss of revenue; |
| exhaustion of any available insurance and our capital resources; |
| the inability to commercialize emricasan; and |
| a decline in our share price. |
Our inability to obtain and retain 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. We currently carry $5.0 million of product liability insurance covering our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. If we determine that it is prudent to increase our product liability coverage due to the commercial launch of any approved product, we may be unable to obtain such increased coverage on acceptable terms, or at all. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Risks Related to Our Reliance On Third Parties
We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize emricasan and our business could be substantially harmed.
We anticipate that we will engage one or more third-party CROs in connection with our planned Phase 2 and Phase 3 clinical trials for emricasan. We will rely heavily on these parties for execution of our clinical trials, and we will control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of
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our studies is conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on our CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with cGCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for drug candidates in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these CROs fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted with drug product produced under cGMP regulations and will require a large number of test subjects. Our failure or any failure by our CROs to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of our CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
Our CROs are not our employees and, except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval for or successfully commercialize emricasan. As a result, our financial results and the commercial prospects for emricasan would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Switching or adding CROs involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Although we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, prospects, financial condition and results of operations.
We rely completely on third parties to manufacture our preclinical and clinical drug supplies and we intend to rely on third parties to produce commercial supplies of emricasan, if approved. The development and commercialization of emricasan could be stopped, delayed or made less profitable if those third parties fail to obtain and maintain regulatory approval of their facilities, fail to provide us with sufficient quantities of drug product or fail to do so at acceptable quality levels or prices.
We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture emricasan on a clinical or commercial scale. Instead, we rely on contract manufacturers for such production.
We do not currently have any agreement with a manufacturer to produce the active pharmaceutical ingredient, or API, in emricasan. We acquired quantities of the API from Pfizer as part of our acquisition of the rights to the drug candidate. We believe the quantities we acquired from Pfizer are sufficient to support our planned Phase 2b ACLF trial, Phase 3 HCV-POLT trial and Phase 2b CLF trial. However, we will need to identify and qualify a new third-party manufacturer of API prior to commercialization of emricasan and, if our estimates regarding our supply are incorrect, prior to the completion of our planned clinical trials. Any delay in identifying and qualifying a new manufacturer of API could delay the potential commercialization of emricasan, and, in the event that we do not have sufficient API to complete our planned clinical trials, it could delay such trials.
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In addition, we do not currently have a long-term commitment for the production of finished emricasan drug product. Metrics, Inc., a contract manufacturer, has performed formulation and finished goods manufacturing for us based on purchase orders. We expect to continue to purchase finished drug product from Metrics, but currently have no long-term supply commitment with Metrics. If Metrics is unable to produce the amount of finished drug product we need, we may need to identify and qualify other third-party manufacturers of finished drug product in order to complete the clinical development and commercialization of emricasan. Metrics inability to produce the amount of finished drug product we need, or any delay in identifying and qualifying another manufacturer of finished drug product could delay our clinical trials and the potential commercialization of emricasan.
The facilities used by our contract manufacturers to manufacture emricasan must be approved by the applicable regulatory authorities, including the FDA, pursuant to inspections that will be conducted after an NDA or comparable foreign regulatory marketing application is submitted. We do not control the manufacturing process of emricasan and are completely dependent on our contract manufacturing partners for compliance with the FDAs requirements for manufacture of both the active drug substances and finished drug product. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the FDAs strict regulatory requirements, they will not be able to secure or maintain FDA approval for the manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any other applicable regulatory authorities does not approve these facilities for the manufacture of emricasan or if it withdraws any such approval in the future, or if our suppliers or contract manufacturers decide they no longer want to supply or manufacture for us, we may need to find alternative manufacturing facilities, in which case we might not be able to identify manufacturers for clinical or commercial supply on acceptable terms, or at all, which would significantly impact our ability to develop, obtain regulatory approval for or market emricasan.
In addition, the manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production and absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in our supply of emricasan or in the manufacturing facilities in which emricasan is made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues relating to the manufacture of emricasan will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide our drug candidate to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely.
If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.
Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical, radioactive and hazardous materials. Although we believe that our manufacturers procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical, radioactive or hazardous materials. As a result of any such contamination or injury we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could
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exceed our resources. We do not have any insurance for liabilities arising from medical radioactive or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.
Risks Related to Our Financial Position and Capital Requirements
We have a limited operating history, have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
Our operations began in 2005 and we have only a limited operating history upon which you can evaluate our business and prospects. Our operations to date have been limited to conducting product development activities for emricasan and performing research and development with respect to our clinical and preclinical programs. In addition, as an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. Nor have we demonstrated an ability to obtain regulatory approval for or to commercialize a drug candidate. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a history of successfully developing and commercializing pharmaceutical products.
To date, we have financed our operations primarily through private placements of convertible debt and preferred stock, and we have incurred significant operating losses since our inception, including consolidated net losses of $12.0 million and $8.7 million for the years ended December 31, 2011 and 2012, respectively. As of December 31, 2012, we had an accumulated deficit of $58.8 million. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders equity and working capital. Our losses have resulted principally from costs incurred in our research and development activities. We anticipate that our operating losses will substantially increase over the next several years as we execute our plan to expand our research, development and commercialization activities, including the clinical development and planned commercialization of our drug candidate, emricasan, and incur the additional costs of operating as a public company. In addition, if we obtain regulatory approval of emricasan, we may incur significant sales and marketing expenses. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or whether or when we will become profitable, if ever.
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.
Our report from our independent registered public accounting firm for the year ended December 31, 2012 includes an explanatory paragraph stating that our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited consolidated financial statements, and it is likely that investors will lose all or a part of their investment. After this offering, future reports from our independent registered public accounting firm may also contain statements expressing doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all.
We have not generated any revenues to date from product sales. We may never achieve or sustain profitability, which could depress the market price of our common stock, and could cause you to lose all or a part of your investment.
Our ability to become profitable depends on our ability to develop and commercialize emricasan. To date, we have no products approved for commercial sale and have not generated any revenues from sales of any drug
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candidate, and we do not know when, or if, we will generate revenues in the future. We do not anticipate generating revenues, if any, from sales of emricasan for at least the next several years and we will never generate revenues from emricasan if we do not obtain regulatory approval for emricasan. Our ability to generate future revenues depends heavily on our success in:
| developing and securing U.S. and/or foreign regulatory approvals for emricasan; |
| manufacturing commercial quantities of emricasan at acceptable cost; |
| achieving broad market acceptance of emricasan in the medical community and with third-party payors and patients; |
| commercializing emricasan, assuming we receive regulatory approval; and |
| pursuing clinical development of emricasan in additional indications. |
Even if we do generate product sales, we may never achieve or sustain profitability. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.
If we fail to obtain additional financing, we may be unable to complete the development and commercialization of emricasan.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical development of emricasan, including our planned Phase 2 and Phase 3 clinical trials. If approved, we will require significant additional amounts in order to launch and commercialize emricasan, including building our own commercial capabilities to sell, market, and distribute emricasan in the United States and the EU.
We estimate that our net proceeds from this offering will be approximately $ million, based upon an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. We believe that such proceeds together with our existing cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months. In particular, we believe that the net proceeds from this offering intended for clinical development of emricasan and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund such development through completion of our planned Phase 2b ACLF trial. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We will require additional capital for the further development and commercialization of emricasan and may need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of emricasan or other research and development initiatives. We also could be required to seek collaborators for emricasan at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to emricasan in markets where we otherwise would seek to pursue development or commercialization ourselves.
Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or drug candidate.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt 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
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indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or drug candidate, or grant licenses on terms unfavorable to us.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporations ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. As a result of our most recent private placements and other transactions that have occurred over the past three years, we may have experienced, and, upon completion of this offering, may experience, an ownership change. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2012, we had federal and state net operating loss carryforwards of approximately $52.3 million and $51.2 million, respectively, and federal and state research and development credits of $1.3 million and $745,000, respectively, which could be limited if we experience an ownership change.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
As widely reported, global credit and financial markets have experienced extreme disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
At December 31, 2012, we had approximately $8.0 million of cash, cash equivalents and short-term investments. While we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents since December 31, 2012, no assurance can be given that further deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.
Risks Related to Our Intellectual Property
If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
Composition-of-matter patents on the active pharmaceutical ingredient and crystalline forms are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such
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patents provide protection without regard to any method of use. We cannot be certain that the claims in our patent applications covering composition-of-matter and crystalline forms of emricasan will be considered patentable by the United States Patent and Trademark Office, or the U.S. PTO, courts in the United States, or by the patent offices and courts in foreign countries. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. Some of our patents related to emricasan were acquired from a predecessor owner and were therefore not written by us or our attorneys, and we did not have control over the drafting and prosecution of these patents. Further, the former patent owners might not have given the same attention to the drafting and early prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting and prosecution. In addition, the former patent owners may not have been completely familiar with U.S. patent law, possibly resulting in inadequate disclosure and/or claims. This could result in findings of invalidity or unenforceability of the patents we own or patents issuing with reduced claim scope.
In addition, the patent applications that we own or that we may license may fail to result in issued patents in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patent applications we hold with respect to emricasan is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, emricasan. Further, if we encounter delays in our clinical trials, the period of time during which we could market emricasan under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to emricasan. Furthermore, for applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the U.S. PTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For applications containing a claim not entitled to priority before March 16, 2013, there is greater level of uncertainty in the patent law with the passage of the America Invents Act (2012) which brings into effect significant changes to the U.S. patent laws that are yet untried and untested, and which introduces new procedures for challenging pending patent applications and issued patents. A primary change under this reform is creating a first to file system in the U.S. This will require us to be cognizant going forward of the time from invention to filing of a patent application.
In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results and financial condition.
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Third-party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference and reexamination proceedings before the U.S. PTO or oppositions and other comparable proceedings in foreign jurisdictions. Recently, under U.S. patent reform, new procedures including inter partes review and post grant review have been implemented. As stated above, this reform is untried and untested and will bring uncertainty to the possibility of challenge to our patents in the future. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing emricasan. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that emricasan may give rise to claims of infringement of the patent rights of others.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of emricasan. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that emricasan may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of emricasan, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize the drug candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the drug candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize emricasan may be impaired or delayed, which could in turn significantly harm our business.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize emricasan. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of emricasan. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize emricasan, which could harm our business significantly.
We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not
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issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.
Interference proceedings provoked by third parties or brought by the U.S. PTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
Risks Related to This Offering and Ownership of our Common Stock
We do not know whether an active, liquid and orderly trading 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.
Prior to this offering there has been no public market for shares of our common stock. Although we expect that our common stock will be approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active. The initial public offering price for our common stock will be determined through negotiations with the underwriters, and the negotiated price may
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not be indicative of the market price of the common stock after the offering. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.
The price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this Risk Factors section and elsewhere in this prospectus, these factors include:
| the commencement, enrollment or results of our planned Phase 2 and Phase 3 clinical trials of emricasan or any future clinical trials we may conduct, or changes in the development status of emricasan; |
| any delay in our regulatory filings for emricasan and any adverse development or perceived adverse development with respect to the applicable regulatory authoritys review of such filings, including without limitation the FDAs issuance of a refusal to file letter or a request for additional information; |
| adverse results or delays in clinical trials; |
| our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; |
| adverse regulatory decisions, including failure to receive regulatory approval for emricasan; |
| changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals; |
| adverse developments concerning our manufacturers; |
| our inability to obtain adequate product supply for any approved drug product or inability to do so at acceptable prices; |
| our inability to establish collaborations if needed; |
| our failure to commercialize emricasan; |
| additions or departures of key scientific or management personnel; |
| unanticipated serious safety concerns related to the use of emricasan; |
| introduction of new products or services offered by us or our competitors; |
| announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; |
| our ability to effectively manage our growth; |
| the size and growth, if any, of the ACLF, CLF and HCV-POLT markets and other targeted markets; |
| our ability to successfully enter new markets; |
| actual or anticipated variations in quarterly operating results; |
| our cash position; |
| our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; |
| publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; |
| changes in the market valuations of similar companies; |
| overall performance of the equity markets; |
| sales of our common stock by us or our stockholders in the future; |
| trading volume of our common stock; |
| changes in accounting practices; |
| ineffectiveness of our internal controls; |
| disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; |
| significant lawsuits, including patent or stockholder litigation; |
| general political and economic conditions; and |
| other events or factors, many of which are beyond our control. |
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In addition, the stock market in general, and The NASDAQ Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a companys securities. This type of litigation, if instituted, could result in substantial costs and a diversion of managements attention and resources, which would harm our business, operating results or financial condition.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends is currently prohibited by the terms of a promissory note in the principal amount of $1.0 million issued by us to Pfizer Inc. in July 2010. Any return to stockholders will therefore be limited to the appreciation of their stock.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Prior to this offering, our executive officers, directors, 5% stockholders and their affiliates owned approximately % of our voting stock and, upon the closing of this offering, that same group will hold approximately % of our outstanding voting stock (assuming no exercise of the underwriters over-allotment option) in each case assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). Therefore, even after this offering, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $ per share, based upon an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). Further, investors purchasing common stock in this offering will contribute approximately % of the total amount invested by stockholders since our inception, but will own only approximately % of the shares of common stock outstanding after giving effect to this offering.
This dilution is due to our investors who purchased shares prior to this offering having paid substantially less when they purchased their shares than the price offered to the public in this offering and the exercise of stock options granted to our employees. In addition, as of December 31, 2012, options to purchase 5,694,500 shares of our common stock at a weighted-average exercise price of $0.10 per share and warrants exercisable for up to 2,333,320 shares of our preferred stock at an exercise price of $0.01 per share were outstanding. The exercise of any of these options or warrants would result in additional dilution. All of the outstanding warrants are expected to be net exercised in connection with the completion of this offering. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For a further description of the dilution that you will experience immediately after this offering, see Dilution.
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We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with the Securities and Exchange Commission, or the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The NASDAQ Global Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as say on pay and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
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We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our consolidated net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares of common stock outstanding as of December 31, 2012, upon the closing of this offering we will have outstanding a total of shares of common stock, assuming net exercises of all outstanding warrants, no exercise of the underwriters over-allotment option and no exercise of outstanding options. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters over-allotment option, will be freely tradable without restriction in the public market immediately following this offering. Stifel, Nicolaus & Company, Incorporated and Piper Jaffray & Co., however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.
We expect that the lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, up to an additional shares of common stock will be eligible for sale in the public market, of which shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
After this offering, the holders of shares of our common stock, or % of our total outstanding common stock as of December 31, 2012, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above and assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). See Description of Capital StockRegistration Rights. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time
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to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock, including shares of common stock sold in this offering.
Pursuant to our 2013 equity incentive plan, or the 2013 plan, which will become effective immediately prior to the closing of this offering, our management is authorized to grant stock options to our employees, directors and consultants. The number of shares available for future grant under the 2013 plan will automatically increase each year by an amount equal to 4% of all shares of our capital stock outstanding as of January 1st of each year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of managements attention and resources, which could harm our business.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled Use of Proceeds, and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use the net proceeds from this offering to fund the clinical development of emricasan and related regulatory filings in North America and the EU, and to fund working capital and for general corporate purposes. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective at or prior to the closing of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
| a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time; |
| a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders; |
| a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the president or by a majority of the total number of authorized directors; |
| advance notice requirements for stockholder proposals and nominations for election to our board of directors; |
| a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 66 2⁄3% of all outstanding shares of our voting stock then entitled to vote in the election of directors; |
34
| a requirement of approval of not less than 66 2⁄3% of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and |
| the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock. |
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
35
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations, and future results of anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as may, will, should, expect, plan, anticipate, could, intend, target, project, contemplates, believes, estimates, predicts, potential or continue or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections in this prospectus entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.
This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
36
We estimate that the net proceeds to us from the sale of the common stock that we are offering will be approximately $ million (or $ million if the underwriters exercise their option to purchase additional shares in full), assuming an initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting 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 1.0 million in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $ million, assuming the assumed initial public offering price stays the same.
The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We intend to use approximately $ million of the net proceeds from this offering to fund the clinical development of emricasan and related regulatory filings in the United States and the European Union, and the remainder to fund working capital and for general corporate purposes.
We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next 12 months after the date of this prospectus, although there can be no assurance in that regard. In particular, we believe that the net proceeds from this offering will allow us to complete our planned Phase 2b clinical trial of emricasan in ACLF patients. We will need to raise additional funds to complete our other planned clinical trials for emricasan.
The amounts and timing of our actual expenditures will depend on numerous factors, including the progress of our clinical trials and other development efforts for emricasan and other factors described under Risk Factors in this prospectus, as well as the amount of cash used in our operations. We therefore cannot estimate the amount of net proceeds to be used for the purposes described above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceeds. Pending the uses described above, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
37
We have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if any, to finance the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments. In addition, our ability to pay cash dividends is currently prohibited by the terms of a promissory note in the principal amount of $1.0 million issued by us to Pfizer Inc. in July 2010.
38
The following table sets forth our cash, cash equivalents and short-term investments and our capitalization as of December 31, 2012 as follows:
| on an actual basis; |
| on a pro forma basis to reflect (1) the automatic conversion of all outstanding shares of our convertible preferred stock into 78,911,442 shares of common stock immediately prior to the closing of this offering and the resultant reclassification of our convertible preferred stock warrant liability to stockholders equity (deficit) in connection with such conversion, (2) the issuance of shares of common stock as a result of the expected net exercise of outstanding preferred stock warrants, or the 2010 Warrants, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), which 2010 Warrants will terminate if unexercised prior to the completion of this offering, and (3) the filing of our amended and restated certificate of incorporation immediately prior to the closing of this offering; and |
| on a pro forma as adjusted basis to give further effect to our issuance and sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our financial statements and the related notes included in this prospectus and the Managements Discussion and Analysis of Financial Condition and Results of Operations section and other financial information contained in this prospectus.
As of December 31, 2012 | ||||||||||||
Actual | Pro Forma | Pro Forma As Adjusted(1) |
||||||||||
(unaudited) | ||||||||||||
Cash, cash equivalents and short-term investments |
$ | 8,025,564 | $ | $ | ||||||||
|
|
|
|
|
|
|||||||
Convertible preferred stock warrant liability |
$ | 160,345 | $ | |||||||||
Note payable |
1,000,000 | |||||||||||
Series A and B convertible preferred stock, par value $0.0001 per share; 95,127,538 shares authorized, 78,911,442 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
63,908,372 | |||||||||||
Common stock, par value $0.0001 per share; 120,000,000 shares authorized, 9,958,500 shares issued and 8,684,000 shares outstanding, excluding 1,274,500 shares subject to repurchase, actual; 200,000,000 shares authorized, pro forma and pro forma as adjusted; shares issued and outstanding, pro forma; shares issued and outstanding, pro forma as adjusted |
868 | |||||||||||
Preferred stock, par value $0.0001 per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted |
| |||||||||||
Additional paid-in capital |
470,219 | |||||||||||
Accumulated other comprehensive income |
551 | |||||||||||
Deficit accumulated during the development stage |
(58,807,509 | ) | ||||||||||
|
|
|
|
|
|
|||||||
Total stockholders (deficit) equity |
(58,335,871 | ) | ||||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 6,732,846 | $ | $ | ||||||||
|
|
|
|
|
|
(1) | Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma as |
39
adjusted amount of each of cash, cash equivalents and short-term investments, total stockholders equity (deficit) and total capitalization by approximately $ , 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. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price per share, the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, total stockholders equity (deficit) and total capitalization by approximately $ . |
The number of shares in the table above excludes:
| 5,694,500 shares of common stock issuable upon exercise of stock options outstanding as of December 31, 2012, at a weighted average exercise price of $0.10 per share; |
| shares of our common stock reserved for future issuance under our 2013 equity incentive plan, or the 2013 plan, which will become effective immediately prior to the closing of this offering (including 97,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares reserved under the 2013 plan upon its effectiveness); and |
| shares of common stock reserved for future issuance under our 2013 employee stock purchase plan, which will become effective upon the closing of this offering. |
40
If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering.
As of December 31, 2012, we had a historical net tangible book value of $(58.3) million, or $(6.72) per share of common stock. Our historical net tangible book value per share represents total tangible assets less total liabilities and convertible preferred stock, divided by the number of shares of common stock outstanding at December 31, 2012.
On a pro forma basis, after giving effect to (1) the automatic conversion of all outstanding shares of our convertible preferred stock into 78,911,442 shares of our common stock immediately prior to the closing of this offering and the reclassification of our convertible preferred stock warrant liability to additional paid-in capital, a component of stockholders equity (deficit), and (2) the issuance of shares of common stock as a result of the expected net exercise of outstanding warrants, or the 2010 Warrants, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), which 2010 Warrants will terminate if unexercised prior to the completion of this offering, our pro forma net tangible book value (deficit) as of December 31, 2012 would have been approximately $ , or approximately $ per share of our common stock.
After giving further effect to the sale of shares of common stock that we are offering at an assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2012 would have been approximately $ million, or approximately $ per share. This amount represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $ per share to new investors purchasing shares of common stock in this offering.
Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution (without giving effect to any exercise by the underwriters of their option to purchase additional shares):
Assumed initial public offering price per share |
$ | |||||||
Historical net tangible book value (deficit) per share as of December 31, 2012 |
$ | (6.72 | ) | |||||
Pro forma increase in historical net tangible book value per share attributable to the pro forma transactions described in the preceding paragraphs |
||||||||
|
|
|||||||
Pro forma net tangible book value per share as of December 31, 2012 |
$ | |||||||
Increase in pro forma net tangible book value per share attributable to this offering |
||||||||
|
|
|||||||
Pro forma as adjusted net tangible book value per share after this offering |
||||||||
|
|
|||||||
Dilution per share to new investors |
$ | |||||||
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $ , and dilution in pro forma net tangible book value per share to new investors by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $ per share and decrease (increase) the dilution to investors participating in this offering by approximately $ per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
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If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the pro forma as adjusted net tangible book value after the offering would be $ per share, the increase in pro forma net tangible book value per share to existing stockholders would be $ per share and the dilution per share to new investors would be $ per share, in each case assuming an initial public offering price of $ per share, the midpoint of the price range listed on the cover page of this prospectus.
The following table summarizes on the pro forma as adjusted basis described above, as of December 31, 2012, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share paid by existing stockholders for shares issued prior to this offering and the price to be paid by new investors in this offering. The calculation below is based on the assumed initial public offering price of $ per share, the midpoint of the price range listed on the cover page of the prospectus, before deducting the 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 |
% | $ | % | $ | ||||||||||||||
New investors |
||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||
Total |
100 | % | 100 | % | ||||||||||||||
|
|
|
|
|
|
|
The foregoing tables and calculations exclude:
| 5,694,500 shares of common stock issuable upon exercise of stock options outstanding as of December 31, 2012, at a weighted exercise price of $0.10 per share; |
| shares of our common stock reserved for future issuance under our 2013 equity incentive plan, or the 2013 plan, which will become effective immediately prior to the closing of this offering (including 97,000 shares of common stock reserved for future grant or issuance under our 2006 equity incentive plan, which shares will be added to the shares reserved under the 2013 plan upon its effectiveness); and |
| shares of common stock reserved for future issuance under our 2013 employee stock purchase plan, which will become effective upon the closing of this offering. |
To the extent any outstanding options are exercised, there will be further dilution to new investors. If all of such outstanding options had been exercised as of December 31, 2012, the pro forma as adjusted net tangible book value per share after this offering would be $ , and total dilution per share to new investors would be $ .
If the underwriters exercise their option to purchase additional shares of our common stock in full:
| the percentage of shares of common stock held by existing stockholders will decrease to approximately % of the total number of shares of our common stock outstanding after this offering; and |
| the number of shares held by new investors will increase to , or approximately % of the total number of shares of our common stock outstanding after this offering. |
42
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in conjunction with our audited consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus and in the section of this prospectus entitled Managements Discussion and Analysis of Financial Condition and Results of Operations.
We have derived the consolidated statements of operations data for the years ended December 31, 2011 and 2012 and for the period from July 13, 2005 (inception) to December 31, 2012 and the consolidated balance sheet data as of December 31, 2011 and 2012 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of the results to be expected in any future period.
Period from July 13, 2005 (Inception) to December 31, 2012 |
||||||||||||
Year Ended December 31, | ||||||||||||
2011 | 2012 | |||||||||||
Consolidated Statement of Operations Data: |
||||||||||||
Operating expenses |
||||||||||||
Research and development |
$ | 9,486,619 | $ | 5,528,106 | $ | 40,825,148 | ||||||
General and administrative |
2,874,507 | 3,086,479 | 18,116,592 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
12,361,126 | 8,614,585 | 58,941,740 | |||||||||
Other income (expense) |
||||||||||||
Interest income |
28,274 | 25,547 | 1,358,750 | |||||||||
Interest expense |
(113,836 | ) | (70,000 | ) | (774,829 | ) | ||||||
Other income (expense) |
(4,439 | ) | 1,358 | 241,399 | ||||||||
Other financing income (expense) |
454,547 | (91,559 | ) | (691,089 | ) | |||||||
|
|
|
|
|
|
|||||||
Total other income (expense) |
364,546 | (134,654 | ) | 134,231 | ||||||||
|
|
|
|
|
|
|||||||
Net Loss |
$ | (11,996,580 | ) | $ | (8,749,239 | ) | $ | (58,807,509 | ) | |||
|
|
|
|
|
|
|||||||
Net loss per share attributable to common stockholders, basic and diluted(1) |
$ | (1.44 | ) | $ | (1.04 | ) | ||||||
|
|
|
|
|||||||||
Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted(1) |
8,346,134 | 8,389,885 | ||||||||||
|
|
|
|
|||||||||
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1) |
||||||||||||
|
|
|||||||||||
Weighted average shares outstanding used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(1) |
||||||||||||
|
|
(1) | See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts. |
As of December 31, | ||||||||
2011 | 2012 | |||||||
Consolidated Balance Sheet Data: |
||||||||
Cash, cash equivalents and short-term investments |
$ | 16,758,038 | $ | 8,025,564 | ||||
Working capital |
15,202,374 | 6,688,847 | ||||||
Total assets |
16,958,880 | 8,145,747 | ||||||
Convertible preferred stock warrant liability |
68,786 | 160,345 | ||||||
Note payable |
1,000,000 | 1,000,000 | ||||||
Convertible preferred stock |
63,908,372 | 63,908,372 | ||||||
Total stockholders deficit |
(49,739,275 | ) | (58,335,871 | ) |
43
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 our audited consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the Risk Factors section of this prospectus for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease. We are developing our lead compound, emricasan, for the treatment of patients with chronic liver disease and acute exacerbations of chronic liver disease. To date, emricasan has been studied in over 500 subjects in ten clinical trials. In a randomized Phase 2b clinical trial, emricasan demonstrated a statistically significant, consistent, rapid and sustained reduction in elevated levels of two key biomarkers of inflammation and cell death, alanine aminotransferase, or ALT, and cleaved Cytokeratin 18, or cCK18, respectively, both of which are implicated in the severity and progression of liver disease. Our initial development strategy targets indications for emricasan with high unmet clinical need and orphan patient populations, such as patients with acute-on-chronic liver failure, or ACLF, chronic liver failure, or CLF, and patients who have developed liver fibrosis post-orthotopic liver transplant due to Hepatitis C virus infection, or HCV-POLT.
We have designed a comprehensive clinical program to demonstrate the therapeutic benefit of emricasan across the spectrum of fibrotic liver disease. We plan to study emricasan in patients with rapidly progressing fibrosis (HCV-POLT) as well as in patients with established liver cirrhosis and decompensated liver disease (ACLF and CLF). In the HCV-POLT population where progression of fibrosis is particularly rapid, we plan to assess whether emricasan can arrest this progression which eventually leads to cirrhosis and ultimately liver failure. If emricasan demonstrates the ability to halt the progression of fibrosis, we believe this could serve as a basis to study emricasan in additional indications in liver disease in the future. Our planned trials in ACLF will evaluate whether emricasan can halt the progression of decompensation to multi-organ failure or death in an acutely decompensating cirrhotic patient population. Our planned trials in CLF will assess whether emricasan can stabilize decompensation and provide patients with chronic decompensation additional time to obtain a liver transplant. Our clinical development plan for emricasan includes a Phase 2b clinical trial in ACLF patients, a Phase 2b clinical trial in CLF patients, and a Phase 3 pivotal trial in HCV-POLT patients. We expect to initiate the Phase 2b ACLF trial and the Phase 3 HCV-POLT trial in the second half of 2013 and the Phase 2b CLF trial in the second half of 2014.
We previously conducted the majority of our activities related to emricasan through our wholly-owned subsidiary, Idun Pharmaceuticals, Inc., or Idun, which we acquired from Pfizer Inc. in August 2010. In January 2013, the assets and rights related to emricasan were distributed from Idun to us for no consideration, at which time we spun off Idun, which became an independent company owned by our stockholders at that time. See Certain Relationships and Related Person Transactions. The following information is presented on a consolidated basis to include the accounts of Idun. All intercompany transactions and balances are eliminated in consolidation.
Since our inception, our primary activities have been organizational activities, including recruiting personnel, conducting research and development, including clinical trials and raising capital. To date, we have funded our operations primarily through sales of preferred stock and convertible promissory notes. From inception through December 31, 2012, we have received net proceeds of $60.0 million from such sales.
We have no products approved for sale, we have not generated any revenues to date and we have incurred significant operating losses since our inception. We have never been profitable and have incurred consolidated net losses of approximately $12.0 million and $8.7 million in the years ended December 31, 2011 and 2012, respectively. As of December 31, 2012, we had an accumulated deficit of $58.8 million.
44
We expect to continue to incur significant operating losses and negative cash flows from operating activities for the foreseeable future as we continue the clinical development of emricasan and seek regulatory approval for and, if approved, pursue eventual commercialization of emricasan. As of December 31, 2012, we had cash, cash equivalents and short-term investments of approximately $8.0 million. To fund further operations, we will need to raise additional capital. We may obtain additional financing in the future through the issuance of our common stock in this public offering, through other equity or debt financings or through collaborations or partnerships with other companies. Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering and our existing cash, cash equivalents and short-term investments, together with interest thereon, will be sufficient to fund our operations for at least the next 12 months. However, successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities and, unless and until we do, we will need to raise substantial additional capital through debt or equity financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could have a material adverse effect on our results of operations, financial condition and our ability to execute on our business plan. In its report on our consolidated financial statements for the year ended December 31, 2012, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding our ability to continue as a going concern.
Financial Overview
Revenues
We currently have no products approved for sale, and we have not generated any revenues to date. We have not submitted any drug candidate for regulatory approval. In the future, we may generate revenues from a combination of milestone payments, reimbursements, and royalties in connection with any future collaboration we may enter into with respect to emricasan, as well as product sales from emricasan. However, we do not expect to receive revenues unless and until we receive approval for emricasan or potentially enter into collaboration agreements for emricasan. If we fail to achieve clinical success in the development of emricasan in a timely manner and/or obtain regulatory approval for this drug candidate, our ability to generate future revenues would be materially adversely affected.
Research and Development Expenses
The majority of our operating expenses to date have been incurred in research and development activities. In late 2011, we ceased clinical development of a product candidate, CTS-1027, which we licensed from Roche Palo Alto LLC and F. Hoffman-La Roche Ltd., or collectively Roche, in 2006. In early 2012, the rights to this product candidate reverted to Roche. Research and development expenses through 2011 were primarily devoted to this product candidate. Starting in late 2011, research and development expenses have been focused on the development of emricasan. Our business model is currently focused on the broad development of emricasan in various liver diseases and is dependent upon our continuing to conduct research and a significant amount of clinical development. Our research and development expenses consist primarily of:
| expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants that conduct our clinical trials and our preclinical studies; |
| employee-related expenses, which include salaries and benefits; |
| the cost of finalizing our chemistry, manufacturing and controls capabilities and providing clinical trial materials; |
| facilities, depreciation and allocated operating expenses; and |
| costs associated with other research activities and regulatory approvals. |
Research and development costs are expensed as incurred.
At this time, due to the inherently unpredictable nature of preclinical and clinical development, we are unable to estimate with any certainty the costs we will incur in the continued development of emricasan. Clinical development timelines, the probability of success and development costs can differ materially from expectations.
45
We are currently focused on advancing emricasan in multiple indications and our future research and development expenses will depend on its clinical success. In addition, we cannot forecast with any degree of certainty whether emricasan will be the subject of future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Research and development expenditures will continue to be significant and will increase as we continue clinical development of emricasan over at least the next several years. We expect to incur significant development costs as we conduct our planned Phase 2b and Phase 3 clinical trials of emricasan, subject to receiving input from regulatory authorities.
The costs of clinical trials may vary significantly over the life of a project owing to factors that include but are not limited to the following:
| per patient trial costs; |
| the number of patients that participate in the trials; |
| the number of sites included in the trials; |
| the countries in which the trial is conducted; |
| the length of time required to enroll eligible patients; |
| the number of doses that patients receive; |
| the drop-out or discontinuation rates of patients; |
| potential additional safety monitoring or other studies requested by regulatory agencies; |
| the duration of patient follow-up; and |
| the efficacy and safety profile of the drug candidate. |
We do not expect emricasan to be commercially available, if at all, for at least the next several years.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, and business development functions. Other general and administrative expenses include facility costs, patent filing and maintenance costs, and professional fees for legal, consulting, auditing and tax services.
We anticipate that our general and administrative expenses will increase in future periods, reflecting an expanding infrastructure and increased professional fees associated with being a public reporting company.
In addition, if emricasan receives regulatory approval, we expect to incur increased expenses associated with building a sales and marketing team. Some expenses may be incurred prior to receiving regulatory approval of emricasan. We do not expect to receive any such regulatory approval for at least the next several years.
Interest Income
Interest income consists primarily of interest income earned on our cash and cash equivalents as well as our short-term investments.
Interest Expense
Interest expense consists primarily of coupon interest on our $1.0 million promissory note payable to Pfizer Inc.
Other Income (Expense)
Other income includes a one-time, non-operating transaction associated with the receipt of a federal investment tax credit in 2010.
Other Financing Income (Expense)
Other financing (expense) income consists of the acceleration of the remaining amortization of the debt discount and the revaluation of our convertible preferred stock warrants issued in conjunction with our 2010 bridge note financing.
Critical Accounting Policies and Significant Judgments and Estimates
Our managements discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in
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the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on 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. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in the notes to our audited consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our vendor agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time.
Examples of estimated accrued research and development expenses include:
| fees paid to CROs in connection with clinical studies; |
| fees paid to investigative sites in connection with clinical studies; |
| fees paid to vendors in connection with preclinical development activities; and |
| fees paid to vendors related to product manufacturing, development and distribution of clinical supplies. |
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period. We have not experienced any significant adjustments to our estimates to date. Clinical trial activities were minimal for the years ended December 31, 2011 and 2012.
Share-Based Compensation
We account for share-based compensation by measuring and recognizing compensation expense for all share-based payments made to employees and directors based on estimated grant date fair values. We use the straight-line method to allocate compensation cost to reporting periods over each optionees requisite service period, which is generally the vesting period. We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes option pricing model. The Black-Scholes model requires the input of subjective assumptions, including the risk-free interest rate, expected dividend yield, expected volatility, expected term and the fair value of the underlying common stock on the date of grant, among other inputs.
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The following table summarizes our weighted-average assumptions used in the Black-Scholes model to value employee option grants:
Year Ended December 31, | ||||||||
2011 | 2012 | |||||||
Risk-free interest rate |
1.18%-2.71 | % | 0.78%-1.41 | % | ||||
Expected dividend yield |
| | ||||||
Expected volatility |
70%-72 | % | 69%-70 | % | ||||
Expected term (in years) |
6.1 | 6.1 |
Risk-free Interest Rate. The risk-free interest rate assumption is based on zero-coupon U.S. Treasury instruments that have terms consistent with the expected term of our stock option grants.
Expected Dividend Yield. We used an expected dividend yield of zero because we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.
Expected Volatility. Due to our limited operating history, our status as a private company, and lack of company-specific historical and implied volatility, the expected volatility rate used to value stock option grants is estimated based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical and biopharmaceutical industry in a similar stage of product development to us.
Expected Term. We utilize the SEC staffs simplified method for estimating the expected term of stock option grants. Under this approach, the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option.
Common Stock Value
We are required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option pricing model. The fair value of the common stock underlying our stock-based awards was determined on 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 granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. Our assessments of the fair value of our common stock were done using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the AICPA Practice Guide. In addition, our board of directors considered various objective and subjective factors to determine the fair value of our common stock, including: external market conditions affecting the biopharmaceutical industry, trends within the biopharmaceutical industry, the superior rights and preferences of our preferred stock relative to our common stock at the time of each grant, our results of operations and financial position, the status of our research and development efforts, our stage of development and business strategy, the lack of an active public market for our common and our preferred stock, and the likelihood of achieving a liquidity event such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions.
Our assessment analyses were based on a methodology that first estimated the fair value of our business as a whole, or enterprise value. Once we determined the expected enterprise value we then adjusted for expected cash and debt balances, allocated value to the various stockholders, adjusted to present value and discounted for lack of marketability.
In valuing our common stock, the board of directors determined the equity value of our company by utilizing the market approach. The market approach estimates the fair value of a company by applying market multiples of comparable publicly traded or privately held companies in the applicable industry or similar lines of business which are based on key metrics implied by the enterprise values or acquisition values of comparable publicly traded or privately held companies.
We then allocated the fair value of our company to each of our classes of stock using either the Option Pricing Method, or OPM, or the Probability Weighted Expected Return Method, or PWERM. The OPM treats common
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stock and convertible preferred stock as call options on an enterprise value, with exercise prices based on the value thresholds at which the allocation among the various holders of a companys securities changes. Under this method, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preferences of our preferred stock at the time of a liquidity event such as a merger, sale or IPO, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. The OPM uses the Black-Scholes option pricing model to price the call option. This model defines the securities fair values as functions of the current fair value of a company and uses assumptions such as the anticipated timing of a liquidity event and the estimated volatility of the equity securities. A discount for lack of marketability was applied to reflect the increased risk arising from the inability to readily sell the shares.
The PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. The future outcomes considered under the PWERM included private merger and acquisition sale outcomes, as well stay-private and dissolution scenarios. In the private merger and acquisition sale scenarios, a large portion of the equity value is allocated to the convertible preferred stock to incorporate the aggregate liquidation preferences. The fair value of the enterprise determined using the private merger and acquisition, stay-private and dissolution scenarios would be weighted according to the board of directors estimate of the probability of each scenario.
The key subjective factors and assumptions used in our valuations primarily consisted of: (i) the selection of the appropriate valuation model, (ii) the selection of the appropriate market comparable transactions, (iii) the financial forecasts utilized to determine future cash balances and necessary capital requirements, (iv) the probability and timing of the various possible liquidity events, (v) the estimated weighted average cost of capital and (vi) the discount for lack of marketability of our common stock.
Given the limited number of biopharmaceutical IPOs and public and private merger and acquisition, or M&A, transactions from 2010 through 2012, we considered the population of all biopharmaceutical IPOs and all public and private biopharmaceutical M&A transactions, beginning with transactions in 2010 and including transactions through the related valuation date, across all stages of development and therapeutic areas. Certain very large and very small transactions were eliminated as outliers. The remaining comparables covered a wide range of therapeutic areas, addressable markets and stages of development. We generally selected the low end, average or high end of the comparables based on our assessment of which valuation was most likely, given the timing of each event, our expected development progress and financial condition at the expected liquidity event date.
At each valuation date, we used our then current budget or forecast, as approved by our board of directors, to determine our estimated financing needs and forecasted cash balances for each exit scenario and exit date. We then estimated the probability and timing of each potential liquidity event based on managements best estimate taking into consideration all available information as of the valuation date, including the stage of clinical development of our lead drug candidate, industry clinical success rates, our expected near-term and long-term funding requirements, and an assessment of the current financing and biopharmaceutical industry environments at the time of the valuation.
Discussion of Specific Valuation Inputs
Over time, a combination of factors caused changes in the fair value of our common stock. The following summarizes the changes in value from January 2011 to December 2012 and the major factors that caused each change.
During 2010 we focused our research and development expenses on CTS-1027, completing a series of clinical trials exploring anti-inflammatory and anti-viral properties of CTS-1027 in patients with Hepatitis C virus infection who had failed existing therapies. In addition, in August 2010, we augmented our product portfolio with the acquisition of Idun from Pfizer. The acquisition yielded multiple assets, including: emricasan, a preclinical stage candidate for oncology indications named IDN-13389 and a development agreement with Abbott Laboratories for an oncology drug candidate in multiple Phase 2 clinical trials. Emricasan continues to be held by us, while the rest of Idun was spun out to our shareholders in January 2013. At this time we are focusing our development efforts exclusively on emricasan.
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We utilized this information when applying the market approach and a PWERM allocation method using multiple private M&A sale scenarios, a stay-private scenario, and a dissolution scenario. Each of these scenarios is based on a combination of the expected timing of future financing or liquidity events and the progress achieved in our clinical studies. As a result of the developments in our business and applying the common stock valuation methodology described above, we estimated the fair value of our common stock to be $0.12 per share as of January 1, 2011 with no significant developments occurring between January 1, 2011 and our February 17, 2011 grant. For option grants in February 2011 the board of directors deemed the fair value of the common stock to be $0.12 per share. We identified three private M&A exit scenarioslow, moderate, and high, a stay-private scenario, and a dissolution scenario in applying the PWERM method to determine the value of our common stock as of January 1, 2011. The private M&A scenarios contemplated a December 2012 potential exit date based on the then-current estimate of the next significant valuation inflection point related to the results of the clinical development of CTS-1027. We weighted the low M&A scenario at 40%, the moderate M&A scenario at 2.5%, the high M&A scenario at 2.5%, the stay private scenario at 20% and the dissolution scenario at 35%. We applied a discount for lack of marketability of 22% to each of the private M&A scenarios and also to the stay private scenario in determining the value of our common stock as of January 1, 2011.
March 2011 through October 2011: Throughout most of 2011, we continued to focus our research and development expenses on CTS-1027; however, in late 2011, we ceased clinical development of CTS-1027. Beginning in late 2011, we began focusing our research and development expenses on the development of emricasan. We utilized this information when applying the market approach and an OPM allocation method. As a result of the ceasing development of CTS-1027, our refocus on emricasan and the common stock valuation methodology described above, we estimated the fair value of our common stock to be $0.01 per share as of December 9, 2011. Because we ceased development of CTS-1027 and shifted our research and development focus to emricasan, we adopted an OPM allocation method to value our common stock. As a result of the shift in our research and development focus in late 2011 and related delay in achieving an exit event, it became too speculative to determine the potential liquidity options that might become available to us, making application of the PWERM allocation method unreliable. We applied a discount for lack of marketability of 20% in determining the value of the common stock as of December 9, 2011.
November 2011 through December 2012: Beginning in late 2011 and throughout 2012, we continued to focus our research and development efforts on the development of emricasan. We utilized this information when applying the market approach and an OPM allocation method. For option grants in December 2011, March 2012, June 2012, July 2012, and December 2012 the board of directors deemed the fair value of our common stock to be $0.01 per share. We continued to apply an OPM allocation method in determining the value of our common stock because of the difficulty associated with determining the potential liquidity events that might have become available to us. We applied a discount for lack of marketability of 20% in determining the value of our common stock during this period.
Summary of Stock Option Grants
The following table sets forth the exercise price and the fair market value of our common stock at the date of grant for all option grants from January 1, 2011 to December 31, 2012:
Grant Date |
Number of Shares Subject to Options Granted |
Exercise Price per Share |
Common Stock Fair Market Value per Share at Date of Grant |
|||||||||
February 17, 2011 |
3,675,000 | $ | 0.12 | $ | 0.12 | |||||||
December 9, 2011 |
1,350,500 | $ | 0.01 | $ | 0.01 | |||||||
March 22, 2012 |
25,000 | $ | 0.01 | $ | 0.01 | |||||||
June 1, 2012 |
10,000 | $ | 0.01 | $ | 0.01 | |||||||
July 9, 2012 |
300,000 | $ | 0.01 | $ | 0.01 | |||||||
December 7, 2012 |
1,311,750 | $ | 0.01 | $ | 0.01 |
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Total share-based compensation expense included in the consolidated statement of operations was allocated as follows:
Year Ended December 31, |
||||||||
2011 | 2012 | |||||||
Research and development |
$ | 87,581 | $ | 84,664 | ||||
General and administrative |
72,109 | 59,360 | ||||||
|
|
|
|
|||||
Total |
$ | 159,690 | $ | 144,024 | ||||
|
|
|
|
Total share-based compensation expense related to unvested stock option grants not yet recognized as of December 31, 2012 was approximately $37,000 and the weighted-average period over which these grants are expected to vest is 1.2 years.
Based on the assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), the intrinsic value of stock options outstanding as of December 31, 2012 would be $ , of which $ and $ would have been related to stock options that were vested and unvested, respectively, at that date.
Convertible Preferred Stock Warrant Liability
We have issued freestanding warrants exercisable for shares of our Series A convertible preferred stock. These warrants are classified a liability in the accompanying consolidated balance sheets, as the terms for redemption of the underlying security are outside our control. The warrants are recorded at fair value using the Black-Scholes option pricing model. The fair value of all warrants, except as noted below, is remeasured at each financial reporting date with any changes in fair value being recognized in other financing income (expense), a component of other income (expense), in the accompanying consolidated statements of operations. We will continue to re-measure the fair value of the warrant liability until: (i) exercise, which is expected to occur immediately prior to the completion of this offering, (ii) expiration of the related warrant, or (iii) conversion of the convertible preferred stock underlying the security into common stock, at which time the warrants will be classified as a component of stockholders equity and will no longer be subject to remeasurement.
Net Operating Loss and Research and Development Tax Credit Carryforwards
As of December 31, 2012, we had federal and California tax net operating loss carryforwards of $52.3 million and $51.2 million, respectively, which begin to expire in 2025 and 2015, respectively, unless previously utilized. As of December 31, 2012, we also had federal and California research and development tax credit carryforwards of $1.3 million and $745,000, respectively. The federal research and development tax credit carryforwards will begin to expire in 2026. The California research and development tax credit carryforwards are available indefinitely.
Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expiration of our net operating losses and credits before we can use them. We have recorded a valuation allowance on all of our deferred tax assets, including our deferred tax assets related to our net operating loss and research and development tax credit carryforwards.
JOBS Act
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company, we are electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, 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 not to take advantage of the extended transition period is irrevocable. In addition, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an emerging growth company we choose to rely on
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such exemptions, we may not be required to, among other things, (i) provide an auditors attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) 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 (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officers compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.
Results of Operations
Comparison of the Years Ended December 31, 2011 and 2012
Research and Development Expenses. Our research and development expenses were $9.5 million and $5.5 million for the years ended December 31, 2011 and 2012, respectively. These expenses decreased due to the discontinuation in 2011 of CTS-1027. Our current research and development expenses are focused on emricasan.
General and Administrative Expense. General and administrative expenses increased from $2.9 million for the year ended December 31, 2011 to $3.1 million for the year ended December 31, 2012. The increase in these expenses is primarily associated with the addition of personnel and travel expenses.
Changes in components of Other Income (Expense) were as follows:
Interest Income. Interest income decreased slightly from $28,000 for the year ended December 31, 2011 to $26,000 for the year ended December 31, 2012. Interest income consists of interest earned on our cash and investment balances. Our interest income has not been significant due to nominal cash and investment balances and low interest earned on invested balances.
Interest Expense. Interest expense decreased from $114,000 for the year ended December 31, 2011 to $70,000 for the year ended December 31, 2012. The decrease was due to the conversion of convertible promissory notes that we issued in a 2010 bridge financing, or the 2010 bridge notes, into shares of our Series B convertible preferred stock in 2011, which resulted in no further interest charges on these notes.
Other Income (Expense). Other income (expense) remained relatively flat for the year ended December 31, 2011 compared to the year ended December 31, 2012.
Other Financing Income (Expense). Other financing income was $455,000 for the year ended December 31, 2011 compared to other financing expense of $92,000 for the year ended December 31, 2012. This decrease was due to the acceleration of the remaining amortization of the debt discount related to the 2010 bridge notes upon their conversion in 2011, offset by the revaluation of Series A convertible preferred stock warrants issued in connection with the 2010 bridge notes.
Liquidity and Capital Resources
We have incurred losses since inception and negative cash flows from operating activities for 2011 and 2012. As of December 31, 2012, we had an accumulated deficit of $58.8 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of emricasan and incur additional costs associated with being a public company.
From our inception through December 31, 2012, we have funded our operations primarily through private placements of equity and convertible debt securities. As of December 31, 2012, we had cash, cash equivalents and short-term investments of approximately $8.0 million. To fund further operations, we will need to raise additional capital. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 2012 includes an explanatory paragraph stating that our recurring losses from operations and a net capital deficiency raise doubt about our ability to continue as a going
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concern. If we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations will be materially adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements. We may obtain additional financing in the future through the issuance of our common stock in this public offering, through other equity or debt financings or through collaborations or partnerships with other companies. We estimate that our net proceeds from this offering will be approximately $ million, based upon an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and offering expenses payable by us.
The following table sets forth a summary of the net cash flow activity for each of the periods set forth below:
Year Ended December 31, | ||||||||
2011 | 2012 | |||||||
Net cash used in operating activities |
$ | (12,095,572 | ) | $ | (8,564,207 | ) | ||
Net cash (used in) provided by investing activities |
(13,988,575 | ) | 9,511,374 | |||||
Net cash provided by financing activities |
26,424,333 | 16,085 | ||||||
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|
|
|
|||||
Net increase in cash and cash equivalents |
$ | 340,186 | $ | 963,252 | ||||
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|
|
Net cash used in operating activities was $12.1 million and $8.6 million for the years ended December 31, 2011 and 2012, respectively. The primary use of cash was to fund our operations related to the development of our product candidates in each of these years.
During the year ended December 31, 2011, investing activities used cash of $14.0 million, primarily due to purchases of marketable securities. During the year ended December 31, 2012, investing activities provided cash of $9.5 million consisting primarily of proceeds from maturities of marketable securities.
Financing activities in the year ended December 31, 2011 provided net cash of $26.4 million, compared to $16,000 during the year ended December 31, 2012. Financing activities in 2011 consisted of the issuance of 36,417,224 shares of Series B convertible preferred stock. Financing activities in 2012 consisted of the exercise of common stock options.
We believe that our existing cash, cash equivalents and short-term investments as of December 31, 2012 and the estimated net proceeds from this offering, together with interest thereon, will be sufficient to meet our anticipated cash requirements for at least the next twelve months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
| the initiation, progress, costs and results of our planned Phase 2b and Phase 3 clinical trials of emricasan; |
| the outcome, timing and cost of regulatory approvals; |
| the costs and timing of establishing sales, marketing and distribution capabilities, if emricasan is approved; |
| delays that may be caused by changing regulatory requirements; |
| the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; and |
| the extent to which we acquire or invest in businesses, products or technologies. |
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic partnerships and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
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expenditures or declaring dividends. If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to emricasan, our other technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market emricasan even if we would otherwise prefer to develop and market emricasan ourselves.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations at December 31, 2012:
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 Year |
1- 3 Years | 3- 5 Years | More than 5 Years |
||||||||||||||||
Long-term debt |
$ | 1,000,000 | $ | | $ | | $ | | $ | 1,000,000 | ||||||||||
Interest on long-term debt |
530,833 | 70,000 | 140,000 | 140,000 | 180,833 | |||||||||||||||
Operating lease obligations |
77,028 | 77,028 | | | | |||||||||||||||
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Total |
$ | 1,607,861 | $ | 147,028 | $ | 140,000 | $ | 140,000 | $ | 1,180,833 | ||||||||||
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Our commitments for operating leases relate primarily to our lease of office space in San Diego, California.
Our commitment for long-term debt relates to the $1.0 million promissory note issued to Pfizer in July 2010. The note bears interest at a rate of 7% per annum and matures in July 2020, subject to acceleration upon specified events of default. Interest is payable on a quarterly basis during the term of the note.
Under our July 2010 stock purchase agreement with Pfizer, we will be required to make payments to Pfizer totaling $18.0 million upon the achievement of specified regulatory milestones related to emricasan. As the timing of when these payments will actually be made is uncertain and the payments are contingent upon the completion of future activities, we have excluded these potential payments from the contractual obligations table above.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Related Party Transactions
For a description of our related party transactions, see Certain Relationships and Related Person Transactions.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our cash, cash equivalents and short-term investments as of December 31, 2012 consisted of cash, money market funds, municipal bonds and corporate debt securities. We are exposed to market risk related to fluctuations in interest rates and market prices. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation.
Our long-term debt bears interest at a fixed rate and therefore has minimal exposure to changes in interest rates.
Effects of Inflation
We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
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Overview
We are a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease. We are developing our lead compound, emricasan, for the treatment of patients with chronic liver disease and acute exacerbations of chronic liver disease. To date, emricasan has been studied in over 500 subjects in ten clinical trials. In a randomized Phase 2b clinical trial in patients with liver disease, emricasan demonstrated a statistically significant, consistent, rapid and sustained reduction in elevated levels of two key biomarkers of inflammation and cell death, alanine aminotransferase, or ALT, and cleaved Cytokeratin 18, or cCK18, respectively, both of which are implicated in the severity and progression of liver disease. Our initial development strategy targets indications for emricasan with high unmet clinical need in orphan patient populations, such as patients with acute-on-chronic liver failure, or ACLF, chronic liver failure, or CLF, and patients who have developed liver fibrosis post-orthotopic liver transplant due to Hepatitis C virus infection, or HCV-POLT.
Emricasan is a first-in-class, orally active caspase protease inhibitor designed to reduce the activity of enzymes that mediate inflammation and cell death, or apoptosis. We believe that by reducing the activity of these enzymes, emricasan has the potential to interrupt the progression of liver disease. We have observed compelling preclinical and clinical trial results that suggest emricasan may have clinical utility in slowing progression of liver diseases regardless of the original cause of the disease. In particular, we have completed two placebo-controlled Phase 2 trials in patients with liver disease showing statistically significant reductions in ALT levels that occur rapidly, within as little as one day after initiation of therapy, and are maintained throughout the treatment period. In our 204-patient Phase 2b trial, we also measured cCK18, an important biomarker of apoptosis and disease severity. Statistically significant reductions in cCK18 were demonstrated in this trial as early as three hours post-dosing and were maintained for the duration of dosing. Emricasan has been generally well-tolerated in all of the clinical studies.
Liver disease can result from injury to the liver caused by a variety of insults, including Hepatitis C virus, or HCV, Hepatitis B virus, or HBV, obesity, chronic excessive alcohol use or autoimmune diseases. Regardless of the underlying cause of the disease, there are important similarities in the disease progression including increased inflammatory activity and excessive liver cell apoptosis, which if unresolved leads to fibrosis. Fibrosis, if allowed to progress, will lead to cirrhosis, or excessive scarring of the liver, which may result in reduced liver function. Some patients with liver cirrhosis have a partially functioning liver and may appear asymptomatic for long periods of time, which is referred to as compensated liver disease. When the liver is unable to perform its normal functions this is referred to as decompensated liver disease. ACLF occurs in patients who have compensated or decompensated cirrhosis but are in relatively stable condition until an acute event sets off a rapid worsening of liver function. Patients with CLF suffer from continual disease progression which may eventually lead them to require orthotopic liver transplantation. Patients with HCV who receive orthotopic liver transplants, in which the diseased liver is replaced by a donor liver, will have their HCV infections recur. Many of these HCV-POLT patients will experience accelerated development of fibrosis and progression to cirrhosis of the transplanted liver due to the recurrence of HCV.
The National Institutes of Health, or NIH, estimates that 5.5 million Americans have chronic liver disease or cirrhosis, and liver disease is the twelfth leading cause of death in the United States. According to the European Association for the Study of the Liver, or EASL, 29 million Europeans have chronic liver disease and liver disease represents approximately two percent of deaths annually. In the United States, more than 5,000 liver transplants are performed in adults and more than 500 in children annually, with approximately 17,000 subjects still awaiting transplant. We are planning to study the effectiveness of emricasan in defined subsets of patients with liver disease. ACLF, CLF and HCV-POLT are potential orphan indications in both the United States and European Union, or the EU. We estimate that the target populations for emricasan in these indications in the United States and the EU are approximately 150,000 ACLF patients, 10,000 CLF patients and 50,000 HCV-POLT patients.
We have designed a comprehensive clinical program to demonstrate the therapeutic benefit of emricasan across the spectrum of fibrotic liver disease. We plan to study emricasan in patients with rapidly progressing
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fibrosis (HCV-POLT) as well as in patients with established liver cirrhosis and decompensated liver disease (ACLF and CLF). In the HCV-POLT population where progression of fibrosis is particularly rapid, we plan to assess whether emricasan can arrest this progression which eventually leads to cirrhosis and ultimately liver failure. If emricasan demonstrates the ability to halt the progression of fibrosis, we believe this could serve as a basis to study emricasan in additional indications in liver disease in the future. Our planned trials in ACLF will evaluate whether emricasan can halt the progression of decompensation to multi-organ failure or death in an acutely decompensating cirrhotic patient population. Our planned trials in CLF will assess whether emricasan can stabilize decompensation and provide patients with chronic decompensation additional time to obtain a liver transplant. Our clinical development plan for emricasan includes a Phase 2b clinical trial in ACLF patients, a Phase 2b clinical trial in CLF patients, and a Phase 3 pivotal trial in HCV-POLT patients. We expect to initiate the Phase 2b ACLF trial and the Phase 3 HCV-POLT trial in the second half of 2013 and the Phase 2b CLF trial in the second half of 2014.
(1) | This trial is currently designated a Phase 3 registration study in the EU and a Phase 2b study in the United States. |
Our Team
Our management team is comprised of the former senior executives of Idun Pharmaceuticals Inc., or Idun, and our Chief Medical Officer was the clinical program leader for emricasan during its development at Pfizer Inc. At Idun, these senior executives discovered and led the development of emricasan, Iduns lead asset, which was then known as IDN-6556, until the company was sold to Pfizer in July 2005 for approximately $298 million. We acquired the global rights to emricasan from Pfizer, where it was known as PF-3491390, in July 2010. At both Idun and Pfizer, emricasan was being developed for the treatment of liver fibrosis. As a result of our collective experience, we believe we can successfully develop emricasan for the treatment of acute-on-chronic and chronic liver diseases, including ACLF, CLF, and HCV-POLT.
Our Strategy
Our strategy is to develop and commercialize medicines to treat liver disease and associated fibrotic indications in areas of high unmet medical need. The key elements of our strategy are to:
| Develop emricasan as a treatment for liver diseases in orphan patient populations. We believe that by inhibiting the caspases responsible for inflammation and apoptosis in the liver, emricasan has the potential to stabilize and improve liver function and to slow liver fibrosis progression in patients with liver disease. We are focused on developing emricasan for orphan patient populations with high unmet medical needs, including ACLF, CLF and HCV-POLT. We believe that because these indications represent targeted patient populations, the size and cost of the required clinical trials will be manageable for a company of our size. |
| Pursue accelerated pathways for regulatory approval in the United States and EU. Based on our discussions with regulatory authorities in the United Kingdom and Germany, we have designed clinical studies for both HCV-POLT and ACLF that could suffice as single registration studies for each indication in the EU, if the results are compelling. The U.S. Food and Drug Administration, or FDA, may require additional registration trials for HCV-POLT. We plan to discuss our registration strategy for ACLF and CLF with the FDA after we have received data from our planned Phase 2b ACLF study. We believe that our planned Phase 2b CLF trial may have the potential to serve as a second registration trial for the ACLF indication, should one be required. |
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| Build our own sales and marketing capabilities to commercialize emricasan for indications that target orphan patient populations in North America and Europe. If emricasan is approved for ACLF, CLF and/or HCV-POLT in North America and/or Europe, we intend to build our own commercial organization to market the product for these indications. Specifically, we plan to build a focused, specialized sales force to target the key physicians who treat these indications in these geographic locations, including hepatologists and other liver specialists in tertiary care and transplant centers. |
| Evaluate strategic partnerships to maximize the commercial potential of emricasan. We plan to evaluate opportunities to partner emricasan with pharmaceutical companies that have established sales and marketing capabilities in regions outside of North America and Europe. We may also partner with a pharmaceutical company that has global capabilities to evaluate emricasan in non-orphan indications for which we believe it may also be effective, such as liver fibrosis from viral hepatitis, alcoholic hepatitis and non-alcoholic steatohepatitis, or NASH. |
Overview of Liver Disease
The liver is the largest internal organ in the human body and its proper function is indispensable for many critical metabolic functions, including the regulation of lipid and sugar metabolism, the production of important proteins, including those involved in blood clotting, and purification of blood. There are over 100 described diseases of the liver, and because of its many functions, these can be highly debilitating and life-threatening unless effectively treated. Common causes of liver disease include viral infections, such as HCV and HBV, obesity, chronic excessive alcohol use or autoimmune diseases. Many people with active liver disease remain undiagnosed largely because liver disease patients are often asymptomatic for many years. The NIH estimates that 5.5 million Americans have chronic liver disease or cirrhosis, and liver disease is the twelfth leading cause of death in the United States. According to the EASL, 29 million Europeans have chronic liver disease and liver disease represents approximately two percent of deaths annually.
Liver disease is often first detected as active hepatitis, which is defined as inflammation of the liver. Hepatitis is easily detected by a routine laboratory test to measure blood levels of the liver enzyme ALT. ALT is elevated in almost all liver diseases and represents an overall measure of liver inflammation and liver cell death. As liver disease progresses, fibrotic scar tissue will begin to replace healthy liver tissue and over time will reduce the livers ability to function properly. A liver biopsy is used to diagnose fibrosis and determine how much liver scarring has developed. If fibrosis is allowed to progress, it will lead to cirrhosis. As liver cirrhosis becomes progressively worse, all aspects of liver function will dramatically decline.
Some patients with liver cirrhosis have a partially functioning liver, which is referred to as compensated liver disease, and may appear asymptomatic for long periods of time. When the liver is unable to perform its normal functions this is referred to as decompensated liver disease. ACLF occurs in patients who are in relatively stable condition until an acute event sets off a rapid deterioration of liver function. The morbidity and mortality of the patient population with ACLF we plan to study is high, with approximately 45% of patients dying or progressing to multi-organ failure or requiring transplant within 28 days of hospitalization as a result of the acute decompensating episode. If the patient survives the acute decompensating event, they may return to a stable state. Patients with CLF suffer from continual disease progression which may eventually lead them to require liver transplantation. Despite advances in liver transplantation, morbidity and mortality in the CLF patient population remains high with some patients ineligible for a liver transplant and others unable to be matched with a suitable donor liver.
Patients who receive liver transplants as a result of HCV infection are at risk of accelerated fibrosis of the transplanted liver. This occurs because residual HCV is still present in the patients blood and can immediately infect the new liver, thus increasing the risk of accelerated inflammation and fibrosis. This patient population is referred to as HCV-POLT. Liver fibrosis can be scored using the standard Ishak Fibrosis Score, which stages the severity of fibrosis and/or cirrhosis on a 0-6 scale. Approximately 55% of the patient population we plan to study will progress more than one stage in fibrosis score within two years of transplant and 50% of these HCV-POLT patients will have stage 3 fibrosis within five years after their transplants. If emricasan demonstrates the ability to
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halt the progression of fibrosis in the HCV-POLT population, we believe that this could serve as a basis to evaluate emricasan for additional indications in patients at earlier stages of liver fibrosis resulting from HCV, HBV, obesity, chronic excessive alcohol use or autoimmune diseases.
The Role of Apoptosis, Necrosis and Inflammation in Liver Disease
The death of cells and resulting inflammation play an important role in the progression of many liver diseases. In general, cells can die by either of two major mechanisms, apoptosis, a form of programmed cell death, or necrosis. Both of these mechanisms can produce a state of acute and/or chronic inflammation as shown in Figure 1.
Figure 1. Apoptosis and Necrosis: The Two Main Pathways of Liver Cell Death
High levels of noxious stimuli can rapidly overwhelm the cells natural protective mechanisms, leading to a rupture of the cell and subsequent release of its contents into the surrounding tissue. This process is known as necrosis and results in a highly pro-inflammatory response, further damaging the surrounding tissue. In contrast, the programmed cell death mechanism, termed apoptosis, is a highly controlled and tightly regulated process that involves the orderly condensation and dismantling of the cell leading to its subsequent rapid and specific removal from the surrounding tissue by specialized cells. However, under conditions of excessive stress as often observed in disease, the production of apoptotic cells outpaces the bodys ability to effectively remove them from the surrounding tissue. This results in an accumulation of shed cell fragments known as apoptotic bodies which are taken up by surrounding cells and can stimulate additional cell death. Disease-driven excessive apoptosis results in the development of scar tissue or fibrosis which can lead to tissue destruction and eventually reduce the capacity of an organ to function normally.
Markers of Liver Cell Death
ALT is an enzyme that is produced in liver cells and is naturally found in the blood of healthy individuals. In liver disease, liver cells are damaged and as a consequence, ALT is released into the blood increasing ALT levels above the normal range. Physicians routinely test blood levels of ALT to monitor the health of a patients liver. ALT level is a clinically important biochemical marker of the severity of liver inflammation and ongoing liver disease. Elevated levels of ALT represent general markers of liver cell death and inflammation without regard to any specific mechanism. Aspartate aminotransferase, or AST, is a second enzyme found in the blood that is produced in the liver and routinely measured by physicians along with ALT. As with ALT, AST is often elevated in liver disease and, like ALT, is considered an overall marker of liver inflammation. We have measured both ALT and AST levels in our clinical studies, and have observed similar effects of emricasan on both enzymes. However, because ALT is considered more liver specific and the pattern of changes we have observed in AST levels has been similar to those seen in ALT levels, our discussion will focus primarily on ALT.
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Another important marker of liver cell death is a protein fragment called cCK18. During apoptosis, a key structural protein within the cell called Cytokeratin 18, or CK18, is specifically cleaved by caspases which results in the release of cCK18 into the blood stream. cCK18 is easily detected in the blood with a commercially-available test and is a mechanism-specific biomarker of apoptosis and caspase activity. Importantly, cCK18 is also present in healthy subjects and multiple studies have demonstrated an approximate basal level in healthy subjects.
Numerous independent clinical trials and published studies have demonstrated the utility of cCK18 for detecting and gauging the severity of ongoing liver disease across a variety of disease etiologies. These studies have demonstrated correlations between disease and cCK18 levels in patients with ACLF, CLF, HCV, NASH and various other liver disease indications. For example, it has been shown that in HCV patients, the severity of liver disease was correlated with cCK18 levels and apoptosis, such that the more severe the disease, the higher the serum level of cCK18. In ACLF patients, studies have shown that blood levels of cCK18 were higher in non-surviving patients than in patients that survived. In CLF patients, studies have shown that cCK18 levels are elevated and correlate with liver inflammation and cholestasis. In patients with recurrent HCV-POLT, it has been shown that cCK18 levels and apoptosis were significantly elevated in liver biopsies as determined by immunohistochemical analysis. We believe these studies demonstrate the relationship between elevated cCK18 levels and severity of liver disease and that cCK18 is a valid and important biomarker of excessive apoptosis in liver disease.
The Model for End-Stage Liver Disease, or MELD, is a scoring system for assessing the severity of chronic liver disease. MELD is a composite score that is calculated using bilirubin levels, creatinine levels and International Normalized Ratio, or INR, which is a tool for assessing blood clotting times. MELD scores, which range from 6-40, are considered to be a valuable predictor of three-month survival. MELD score is also generally used to prioritize patients on the liver transplant list, with the average MELD score of 20 in patients undergoing liver transplant. In our planned clinical trials, we will study a subset of patients with ACLF and CLF who have MELD scores ranging from 20 to 30.
Emricasan
Emricasan is a first-in-class, proprietary and orally active caspase protease inhibitor designed to slow or halt the progression of chronic liver disease caused by fibrosis and cirrhosis. To date, emricasan has been administered to over 500 subjects in six Phase 1 and four Phase 2 clinical trials, and has been generally well-tolerated in both healthy volunteers and patients with liver disease. Emricasan has also been extensively profiled in in vitro tests and studied in many preclinical models of human disease.
Mechanism of Action
Emricasan works by inhibiting caspases, which are a family of related enzymes that play an important role as modulators of critical cellular functions, including functions that result in apoptosis and inflammation. Caspase activation and regulation is tightly controlled through a number of mechanisms. All caspases are expressed as enzymatically inactive forms known as pro-caspases which can be activated following a variety of cellular insults or stimuli. Seven caspases are specifically involved in the process of apoptosis while three caspases specifically activate pro-inflammatory cytokines and are not directly involved in apoptosis as shown in Figure 2.
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Figure 2. Emricasan is a Potent Inhibitor of Apoptotic and Inflammatory Caspases
Caspase mediated apoptosis is driven primarily by the activity of caspases 3 and 7 which, by virtue of their enzymatic activity, cleave a wide variety of cellular proteins and result in dismantling of the cell. Other apoptotic caspase family members are principally involved in sensing and transmitting signals from either outside or inside the cell. These signals converge to activate pro-caspases 3 and 7, enabling them to carry out the process of apoptosis.
CK18 is one key structural protein that is cleaved by caspases 3 and 7 in a highly specific manner. The product of this cleavage is a small protein fragment, cCK18. This fragment is contained within the apoptotic cell fragments and is easily detected in serum using a commercially available monoclonal antibody assay. This monoclonal antibody, M30, is used routinely in clinical studies as a measure of apoptosis.
While healthy individuals have normal levels of apoptosis, excessive levels of apoptosis associated with disease can overwhelm the bodys normal clearance mechanisms. Reducing excessive levels of apoptosis reestablishes balance between apoptotic activity and normal clearance mechanisms and brings inflammation and other drivers of disease progression under control. As a result, we believe targeting caspases that drive both apoptosis and inflammation in disease offers a unique and potentially powerful therapeutic approach for the treatment of both acute and chronic liver disease.
Testing in in vitro enzyme assays demonstrated that emricasan efficiently inhibits all human caspases at low nanomolar concentrations. Preclinical studies have demonstrated that emricasan is highly selective for the caspase family of enzymes with little to no activity against other enzyme systems. These studies have also shown that emricasan potently inhibits the apoptosis of cells regardless of the apoptotic stimuli and that it is a potent inhibitor of caspase-mediated pro-inflammatory cytokines. Emricasan has been examined in various preclinical models of liver disease. In these models, caspase activity was demonstrated to be inhibited, as determined by histological examination, in liver tissue. Based on our evaluation of emricasan in in vitro systems, cellular assays and disease models, we believe emricasans mechanism of action has been well characterized.
Clinical Data
To date, emricasan has been studied in over 500 subjects in six Phase 1 clinical trials and four Phase 2 clinical trials. This includes a total of 153 healthy volunteers, 306 subjects with elevated ALT levels and 53 liver transplant subjects receiving single or multiple doses of emricasan ranging from 1 to 500 mg per day orally or 0.1 to 10 mg/kg per day intravenously for up to 12 weeks. Emricasan has demonstrated evidence of a beneficial effect on serological biomarkers in patients with chronic liver disease independent of the cause of disease. Favorable changes have been observed in functional biomarkers of liver damage and inflammation, such as ALT and AST, and mechanistic biomarkers, such as cCK18 and caspase activity, indicating that emricasan works by the presumed mechanism of action of inhibiting apoptosis of liver cells. Importantly, clinical trials have also
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demonstrated that emricasan does not inhibit normal levels of caspase activity in healthy individuals. Emricasan has been generally well-tolerated in clinical trials completed to date.
Phase 2b Dose Response Study in HCV Patients (Study A8491003)
Study A8491003, or the 003 trial, was a Phase 2b, randomized, multicenter, placebo-controlled, double-blind, parallel group, dose response trial. The trial was designed to evaluate the safety and efficacy of emricasan in patients with chronic HCV infection who were unresponsive to antiviral therapy. The trial enrolled 204 HCV patients across three oral emricasan dose arms of twice-daily, or BID, 5 mg, 25 mg and 50 mg and one placebo arm. The primary endpoint in the study was changes from Baseline in ALT and AST levels over a period of 12 weeks. This study also measured cCK18 levels, and caspase 3 and 7 activity as exploratory biomarkers. In this trial, emricasan treatment resulted in statistically significant reductions in the primary endpoints of ALT and AST levels as well as statistically significant reductions in cCK18 levels and caspase 3 and 7 activity.
As shown in Figure 3 below, the changes in ALT demonstrated in the 003 trial were statistically significant in each of the emricasan treatment groups compared with the placebo group. The decreases in ALT were seen by day 7, the first time post-dosing that ALT was measured, and the decreases were maintained throughout the treatment period (up to 12 weeks) in all emricasan treatment groups. Discontinuation of emricasan at the end of the treatment period was followed by a gradual return of ALT towards baseline levels.
Figure 3. Change in ALT (Mean ± SEM(1)) from Baseline Following BID Dosing in Subjects with HCV
(1) | Standard Error of the Mean. |
(2) | Upper limit of normal for males. |
In addition to ALT levels, the 003 trial also examined changes in AST levels. As shown in Figure 4 below, the reductions in AST levels demonstrated in the 003 trial were also statistically significant in each of the emricasan treatment groups compared with the placebo group. Consistent with the ALT results, reductions in AST levels were seen as early as seven days and were maintained throughout the treatment period. At the end of treatment AST levels gradually returned to baseline levels.
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Figure 4. Change in AST (Mean ± SEM(1)) from Baseline Following BID Dosing in Subjects with HCV
(1) | Standard Error of the Mean. |
(2) | Upper limit of normal for males. |
The 003 trial data also provide evidence that emricasan reduces cCK18 levels from baseline in patients with elevated cCK18 levels, as shown in Figure 5 below. Statistically significant reductions in cCK18 levels were reported as early as three hours after dosing and were still evident following ten weeks of treatment, within each of the 5 mg, 25 mg and 50 mg dose arms compared to baseline values in the relevant dose group. Importantly, in the 003 trial, after ten weeks of dosing, cCK18 levels in all emricasan treatment groups were similar to the baseline level of cCK18 in healthy volunteers as established in our Phase 1 trial (see the description of study IDN-6556-03 below) and as generally reported from independent trials. We believe this observation suggests that normal levels of caspase activity remain intact. We also believe that by returning apoptosis to normalized levels, emricasan may enable the balance between apoptosis and the bodys normal clearance mechanism for apoptosis to be restored.
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Figure 5. Change in cCK18 from Baseline Following BID Dosing in Subjects with HCV
The 003 trial also included measurements of caspase 3 and 7 enzymatic activity. As shown in Figure 6 below, emricasan significantly reduced caspase 3 and 7 activity in a pattern similar to its effect on cCK18. We believe these data demonstrate that emricasan rapidly reduces elevated levels of caspase enzymatic activity and, as a consequence, excessive apoptosis in these patients. Since caspase 3 and 7 are known to be involved in the cleavage of CK18 which produces cCK18, we also believe these data suggest that the effect of emricasan on cCK18 is a result of inhibiting caspase activity. In addition, consistent with the cCK18 data, emricasan did not eliminate all caspase 3 and 7 activity in these patients. We believe this suggests that emricasan does not interfere with normal base levels of caspase activity or apoptosis, which is important in establishing the overall safety profile of emricasan.
Figure 6. Change in Caspase 3 and 7 Enzymatic Activity from Baseline Following
BID Dosing in Subjects with HCV
In the 003 trial, emricasan was generally observed to be well-tolerated. The most commonly reported adverse events in emricasan-treated subjects were headache, fatigue, nausea and diarrhea, most of which were mild to moderate in severity. Thirteen subjects withdrew from the study including seven in the placebo group, three from
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the 5 mg, two from the 50 mg and one from the 25 mg emricasan groups. Nineteen adverse events reported by 14 subjects were considered severe with the greatest incidence in the placebo and 5 mg emricasan-treated groups (seven events each) and the lowest incidence in the 25 mg treatment group (one event). Severe adverse events were varied and showed no pattern across the treatment groups. The majority of adverse events had been resolved by the end of the study and the numbers of continuing events were similar for each of the patient cohorts. In addition, no concerning changes in any of the laboratory parameters and no clinically relevant changes in vital signs, electrocardiograms, physical examinations, or liver ultrasound scans could be attributed to emricasan.
Phase 2 Ascending Dose Study in Patients with Hepatic Impairment (Study A8491004)
Study A8491004, or the 004 trial, was a Phase 2, randomized, multicenter, placebo-controlled, double-blind, ascending dose trial in 105 patients with mild to moderate hepatic impairment. The trial was designed to evaluate the safety, tolerability, and pharmacokinetics of several dosing regimens of orally administered emricasan in these patients. The secondary objective of the trial was to evaluate the effects of emricasan on ALT and AST, as markers of efficacy. The trial was conducted at seven study sites and emricasan was administered orally for up to three times daily for 14 days. The study predominantly included patients with HCV liver disease, and also included limited numbers of patients with liver disease attributed to other causes, including HBV, NASH and primary biliary cirrhosis/primary sclerosing cholangitis. While once-daily, or QD, and BID dosing in the HCV patients demonstrated significant reductions in ALT from baseline, the BID dosing cohorts demonstrated greater percentage decreases of ALT levels than QD dosing.
In the 004 trial, 25 HCV patients were administered emricasan once per day for 14 days. As set forth in Figure 7 below, ALT reductions were rapid and sustained during the 14-day dosing period with a 30% to 40% reduction from baseline. While ALT decreases were similar for QD dosing at 25 mg, 100 mg and 200 mg, those seen at a QD dose of 5 mg were less dramatic. After treatment with emricasan was completed, ALT levels returned to pre-treatment levels.
Figure 7. Percentage Change in ALT from Baseline Following QD Dosing in Subjects with HCV
The 004 trial also examined BID, and three times daily, or TID, dosing of emricasan. In the trial, 30 patients received BID dosing at different dose levels and six patients were treated TID. As set forth in Figure 8 below, ALT reductions were rapid and sustained during the 14-day dosing period. In general, decreases in ALT were more pronounced than with QD dosing, with ALT reductions from baseline ranging from 39% to 56%. One cohort of patients was treated with 5 mg TID dosing. The results from this dosing group were similar to the BID
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dosing groups. Patients with liver disease from causes other than HCV were dosed at 100 mg BID. Most of these patients had reductions in ALT similar to those observed in the HCV patients.
Figure 8. Percentage Change in ALT from Baseline Following BID and TID Dosing in Subjects with HCV
In all of the patient populations in this study, emricasan was generally well-tolerated. The most commonly reported adverse events related to emricasan were upper abdominal pain, dyspepsia, fatigue, dizziness, and headache. No subject was discontinued due to an adverse event. Importantly, in both the HCV and HBV infected patients studied, no increases in viral load parameters were observed.
Phase 2 Ascending Dose Crossover Study in Patients with HCV and Liver Fibrosis (Study A8491010)
Study A8491010 was a Phase 2, randomized double-blind, placebo-controlled crossover dose response study of emricasan in 24 patients with chronic HCV infection and liver fibrosis conducted by Pfizer. This study assessed the effects of BID dosing of emricasan on ALT and AST levels in these patients. For each patient, the study consisted of a screening visit, a two-week baseline period, three 14-day study periods separated by a minimum washout period of two weeks, and a two-week follow-up period after the last treatment period. Each patient was to receive three of five possible treatments (emricasan 0.5, 1, 2.5, 5 mg or placebo) BID for 13 days and QD on the final day of each study period. This trial was voluntarily discontinued early due to an unanticipated finding of inflammatory infiltrates in mice in a preclinical study that was ongoing concurrently with the clinical study and was unrelated to this Phase 2 trial. Pfizer notified the FDA of the findings in mice and the discontinuation of the trial, which resulted in the agency placing a clinical hold on the study of emricasan. At the time the clinical hold was imposed, 18 of 24 subjects had completed study A8491010. Because the study was discontinued prematurely, formal statistical tests were not performed. However, reductions in ALT in the 5 mg BID dose group were similar to the results of the 5 mg BID dose groups in the 003 and 004 trials. As described in the Emricasan History section below, the clinical hold was lifted in January 2013.
Clinical Studies in Organ Preservation in Transplant Patients
Preclinical studies demonstrated that emricasan is effective in protecting organs from damage that can occur during transplantation due to ischemia or reduced oxygen during isolation of donor organs, and reperfusion injury resulting from rapid exposure to oxygen following transplantation.
Study A8491002 was a Phase 2 randomized, placebo-controlled, double-blind, parallel group study to evaluate the effects of emricasan when administered in liver transplantation storage and flush solutions used in the preparation of the donated liver, and when administered to the recipient via IV during the first 24 hours after liver transplantation. Ninety-nine patients were randomized into one of four groups. In the first group, the liver was treated with placebo in the storage and flush solution and the patient was given placebo following
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transplantation. In the second group the liver was treated with 15 µg/mL emricasan in the storage and flush solution, but the patient received placebo following transplantation. The third group was treated with a lower concentration of emricasan, 5 µg/mL in the storage and flush solution and the patient received 0.5 mg/kg emricasan for 24 hours by IV administration following transplantation. The fourth group was treated with 15 µg/mL emricasan in the storage and flush solution and the patient received 0.5 mg/kg emricasan for 24 hours by IV administration following transplantation.
The co-primary endpoints were peak absolute change from baseline in ALT and AST measured up to three days post-transplantation. Large increases in both ALT and AST occurred in all groups reflecting liver injury typically occurring after liver transplantation. The outcome on the co-primary endpoints was not different between the placebo and the treatment groups possibly due to the short duration of drug treatment (24 hours) following transplantation. Serum markers of liver cell apoptosis, cCK18, were reduced in all groups receiving drug as compared to placebo. In addition, the level of liver cell apoptosis in liver tissue as determined by quantitation of cells with caspase 3 and 7 activity was reduced in all groups receiving emricasan, suggesting that the drug has activity through the anticipated mechanism of action.
Generally, the adverse events reported in the study were reflective of the severity of disease in the patient population. There were 1,240 adverse events reported in 99 subjects, with similar numbers reported across the four study groups, as discussed above. There were 79 serious adverse events (6.4%) reported by 32 patients in this study. Of all the adverse events, 15 events were reported as possibly treatment-related but none were reported as probably or definitely treatment-related. The type and frequency of adverse events was similar across all groups, including placebo. There were deaths reported in all treatment groups (two in the placebo treatment group, and one in each of the emricasan treatment groups). These data in total support the conclusion that treatment with emricasan in this study has been generally well-tolerated.
Health Canada study NCT01653899, an investigator sponsored clinical trial, has been initiated at the University of Alberta to evaluate the safety and efficacy of islet cell culture and short-term (14 days) oral administration of emricasan in subjects with established Type 1 diabetes mellitus with unstable glycemic control. Health Canada approved the application in April 2012 and the trial is underway. This trial is an open label pilot study funded by a grant from the Juvenile Diabetes Research Foundation. Patients enrolled in this trial are not able to adequately regulate their blood glucose levels with insulin. The patients undergo pancreatic islet cell transplantation, a procedure referred to as the Edmonton procedure, with the goal of eliminating their need for insulin. One objective of this trial is to determine whether emricasan can improve upon the success rate of this so-called Edmonton procedure by reducing the amount of islet cell death after transplantation. Patients are dosed orally for 14 days following islet transplantation and are then monitored for their ability to control blood glucose without the need for insulin.
Phase 1 Studies
We have conducted six Phase 1 trials in subjects with both single and multiple-dose administration of emricasan. The objective of these trials was to examine the safety, tolerability and pharmacokinetics of emricasan. As shown in Figure 9 below, emricasan was generally well-tolerated in all six Phase 1 trials.
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Figure 9. Emricasan Phase 1 Clinical Trial Summary
To understand the activity of emricasan on caspase activity in healthy subjects, a Phase 1 trial (study IDN-6556-03) in 15 subjects was conducted. In the trial, the levels of cCK18 in healthy human subjects was measured pre-dosing and then after dosing at different time intervals up to 12 hours post dosing. In this study, patients were administered 25 mg of emricasan BID as part of a drug-drug interaction study for 24 days with blood levels of cCK18 measured on days one, 17 and 24. As shown in Figure 10 below, dosing with emricasan did not cause meaningful decreases in cCK18 from predose levels in healthy subjects. We believe this demonstrates that emricasan does not interfere with the normal level of caspase activity and apoptosis in humans.
Figure 10. Mean Serum Levels of cCK18 in Healthy Subjects Following 25 mg BID of Emricasan in 15 Subjects
Emricasan History
Emricasan was initially discovered and developed by researchers at Idun, where the company was developing a new class of drugs that modulate caspases involved in the apoptosis and inflammation pathways. Idun, co-founded by Nobel Prize winner H. Robert Horvitz, Ph.D. for his work in the apoptosis field, was uniquely
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positioned as a leading expert in translating apoptosis research into drug development candidates. Emricasan was Iduns lead program when Pfizer acquired the company for approximately $298 million in 2005.
When we acquired emricasan from Pfizer in 2010, emricasan was on clinical hold in the United States due to an observation of inflammatory infiltrates in mice that Pfizer saw in a preclinical study and reported to the FDA. Pfizer performed additional preclinical studies attempting to characterize the nature of the inflammatory infiltrates, but did not carry out a formal carcinogenicity study to evaluate whether or not the infiltrates progressed to cancer. These infiltrates observed in mice were not observed in any other species. In 2008, Pfizer stopped work on the program. After acquiring emricasan, we conducted a thorough internal review of these studies and commissioned several independent experts to review all of the available data. The analysis provided by these experts unanimously concluded that these inflammatory infiltrates did not represent pre-cancerous lesions, nor were these infiltrates likely to progress to cancer. Additionally, a comprehensive analysis of available apoptosis literature supported the conclusion that the infiltrates were not likely to be precursors to cancer.
In April 2011, we met with the FDA to discuss plans for reinitiating clinical development of emricasan. We proposed conducting a carcinogenicity study designed to reproduce the previously observed findings of inflammatory infiltrates and determine whether they progress to cancer. We proposed using the Tg.rasH2 transgenic mouse model, which is known to be predisposed toward tumor development. The FDA agreed with the study design, and agreed that if the study reproduced the previously observed inflammatory infiltrates, but did not produce cancer, the issue which generated the clinical hold would be resolved.
This study was completed successfully. The inflammatory infiltrates were reproduced, and there was no evidence of tumor formation. In summary, treatment with emricasan for 26-weeks did not result in an increase in the incidence of tumors in Tg.rasH2 mice. The results were submitted to the FDA in preparation for a meeting in October 2012. The FDA reviewed the data and agreed with the study conclusion. We subsequently filed a new investigational new drug application, or IND, for emricasan for HCV-POLT, which was formally cleared in January 2013, effectively removing the clinical hold. In addition, the FDA has accepted this Tg.rasH2 carcinogenicity study as one of two carcinogenicity studies required for registration. We plan to perform a two-year rat carcinogenicity study, concurrent with the Phase 3 HCV-POLT study, as the second carcinogenicity study.
Emricasan in ACLF
Medical Need and Market Opportunity
ACLF occurs in patients who have compensated or decompensated cirrhosis but are usually relatively stable. In these patients, some acute event sets off a rapid deterioration of liver function. The cause of this acute episode of decompensation may include toxins, such as alcohol, metabolic abnormalities and infections. The morbidity and mortality of patients with ACLF is high, and approximately 45% of the patient population that we intend to treat will die or develop multi-organ failure as a result of the decompensation episode within 28 days of hospitalization. We estimate that there are 150,000 patients in the United States and the EU diagnosed with symptoms consistent with our target population in ACLF. According to a 2011 publication in the Journal of Hepatology, the in-hospital mortality rate for these acute deteriorating patients is greater than 50% and the total annual charges associated with ICU admissions alone are $3 billion, equating to a mean charge of $116,000 per admission.
Liver function in ACLF patients deteriorates rapidly. At the time of hospitalization, patients may present with MELD scores such as those seen on the transplant waiting list. Although the exact mechanisms remain unclear, massive liver cell loss involving excessive apoptosis and necrosis are known contributing factors leading to progressive dysfunction. There is evidence that serum markers of caspase-driven apoptosis such as cCK18 are elevated in these patients. In addition, independent studies have shown that increased cCK18 levels in this patient population are associated with worse prognosis.
The rapid deterioration in liver function, which may be exacerbated by an altered immune response, leads to life-threatening complications such as renal failure, increased susceptibility to infection, hepatic coma and systemic hemodynamic dysfunction. Current goals of the medical treatment for ACLF are to reverse precipitating factors, support failing organs and prevent further deterioration in liver function in order to give the liver time to
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repair. Medical intervention for ACLF involves treatment of the underlying cause of the acute event. Patients who progress to multi-organ failure may require specific therapies for this such as medications for cardiac failure, mechanical ventilation for respiratory failure or dialysis for renal failure. Liver transplantation is required in some subjects to improve survival and quality of life. There are currently no approved therapies with a specific indication for the treatment of ACLF, and to our knowledge, there are only a limited number of clinical studies currently being conducted in patients with either liver cirrhosis or liver failure. We believe the ACLF population is in high medical need of an efficacious and well-tolerated therapy to prevent progression to multi-organ failure and, ultimately, premature death.
Development Plans
The ACLF studies will assess the safety and efficacy of emricasan in reducing cell death and inflammation in order to improve time to clinical worsening, or TTCW, which is defined as the first occurrence of liver transplant, progression to next organ failure or death in patients with acute liver failure in the presence of cirrhosis. Two studies are being planned in this patient population as follows.
Phase 2b Dose Ranging Study
In this Phase 2b study, we plan to enroll 60 patients with a history of liver cirrhosis that have been admitted to the hospital for an acute deterioration of liver function for more than 24 hours. Patients will be required to have a MELD score between 20 and 30 as well as certain other inclusion criteria related to creatinine levels, bilirubin levels and INR. Patients with uncontrolled infections will be excluded from the study. Patients will be equally randomized to receive either placebo, 5 mg, 25 mg or 50 mg emricasan BID orally. The primary objective in this 28-day dosing study will be to explore the pharmacokinetics and pharmacodynamics together with the safety of emricasan in this patient population. We also plan to measure TTCW, which is anticipated to be the primary efficacy endpoint for the planned Phase 3 studies in ACLF and the Phase 2b study in CLF. Changes in ALT, AST, cCK18 and the components of the MELD score will also be measured in the study.
We plan to initiate this Phase 2b clinical trial in the United Kingdom in the second half of 2013 and anticipate results from the trial will be available during the first half of 2014. The data from this trial will be used in support of our planned end of Phase 2b meetings with both U.S. and EU regulatory authorities to finalize the protocol for our planned Phase 3 trial in ACLF.
Phase 3 Registration Study
The Phase 3 registration study for ACLF is expected to be an international study that will include approximately 400 patients with the same inclusion and exclusion criteria as the Phase 2b study. We expect that the primary endpoint will be TTCW assessed after 28 days of dosing. Changes in ALT, AST and cCK18 and components of MELD score will also be measured in this study. In order to be able to provide important prescribing information to physicians, at the end of the 28-day dosing period, patients randomized to receive emricasan during the initial 28 days of the study will be re-randomized to receive either emricasan or placebo for an additional five months. Patients randomized to placebo will remain on placebo throughout the study.
Based on our discussions with regulatory authorities in the United Kingdom and Germany, we believe that the ACLF Phase 3 clinical trial could suffice as a single registration study for these geographies if the results are compelling. We will discuss a similar strategy for emricasan approval in the United States with the FDA at our end of Phase 2 meeting to be held after the completion of our Phase 2b trial. We plan to submit applications for orphan drug designations for ACLF in the United States and the EU in the second half of 2013.
Emricasan in CLF
Medical Need and Market Opportunity
CLF involves the progressive destruction of liver cells over time resulting in fibrosis and cirrhosis. The cause of the chronic decompensation or liver failure may vary and similar to ACLF includes infections, such as subacute bacterial peritonitis, HCV or HBV, metabolic causes, such as NASH, autoimmune diseases and alcohol. Eventually, these patients will progress to the point where, if eligible, they may require transplantation. The
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difference between this population and ACLF is that in ACLF, patients have an acute event that triggers a decompensatory event that may be reversed whereas in CLF, the event is of a chronic nature and it is unlikely that the liver function will improve. Objectives for the management of patients with CLF will be either to ensure that they stabilize to the point that they are eligible for transplant or that they survive until the time of transplant. The same therapies as those employed for the management of ACLF and mentioned above are generally employed. In CLF, apoptosis is elevated as determined by serological biomarkers and histology, which correlates with clinical worsening. Independent published studies have shown that cCK18 levels are elevated in CLF patients and correlate with extent of liver inflammation and cholestasis.
Although we are not planning to exclusively study patients with CLF on the liver transplant waitlist, many of these patients may also be included in the study. According to the U.S. Department of Health and Human Services, there were over 5,800 adult liver transplants performed in the United States in 2011 and approximately 2,500 died while waiting for transplant and another 500 subsequently became ineligible for a liver transplant. We estimate that there are approximately 5,000 CLF patients in our target population on the transplant waitlist in the United States and the EU. The median wait time for a liver transplant for the subset of patients with MELD scores of 19-24 is 106 days and the mortality rate is approximately 25% during that time frame, according to the United Network for Organ Sharing database. We estimate that there will be at least the same number of patients with CLF who are not candidates for liver transplantation but who might also benefit from emricasan. Given its mechanism of action, emricasan has the potential to improve patients ability to survive longer while waiting for a liver transplant or potentially make them eligible for transplant.
Development Plans
A Phase 2b study in patients with CLF is being planned. This study will be designed to include approximately 100 patients with MELD scores at entry of 20-30. It is expected that the endpoints in this study will include TTCW as well as ALT, AST and cCK18 levels. The data from the ACLF dose ranging study is also expected to serve as the basis for dose selection in this trial. Depending on our interactions with regulatory authorities, this study might also be designed as a second registration study in support of the ACLF indication. We anticipate commencing this trial in the second half of 2014 after completion of the ACLF Phase 2b study.
Emricasan in HCV-POLT
Medical Need and Market Opportunity
According to the Organ Procurement and Transplantation Network and EASL, of the approximately 12,000 patients in the United States and EU who receive liver transplants each year, it is estimated that 30% are HCV-infected. Since immune system suppression is required following liver transplantation, 100% of these patients experience HCV recurrence that can lead to fibrosis and cirrhosis. It is estimated that 50% of these patients develop cirrhosis within two years of transplantation. We refer to this population as the HCV-POLT population, which we estimate to be 50,000 patients in the United States and EU.
In HCV-POLT patients, due to the lack of easily-administered and effective options to address the underlying HCV, patients are monitored closely for the presence of fibrosis and its rate of progression using ALT measurements and biopsies to determine need for treatment. Physicians currently treat these patients when they have an acute flare of HCV together with some sign of fibrosis evident on liver histology. Current treatment options are largely limited to interferon-based regimens that are not well-tolerated or particularly efficacious in this population. Given the lack of effective treatment options, physicians have begun to implement newer treatments such as boceprevir and telaprevir in these patients despite limited data for those treatments in this post-transplant population.
The HCV landscape is expected to evolve dramatically over the next five to ten years with the introduction of interferon-free regimens, which are expected to reach the market as soon as 2015, and next-generation interferon-free regimens, which may reach the market by as early as 2016, with greater efficacy and tolerability over the current antiviral therapies. While these novel treatments are expected to drive high cure rates in treatment-naïve patients, even with 100% treatment rates and 90% cure rates, we believe the number of annual transplants needed
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will significantly exceed the available supply of transplants. Based on market research we commissioned, we estimate that treatment rates would need to be 100% and cure rates would have to exceed 97% before the supply of liver transplants would outstrip the need for transplant on an annual basis, without considering the current backlog. The immuno-compromised status of post-transplant patients and characteristics of viral infection in patients that have previously failed HCV treatments are likely to limit cure rates in the HCV-POLT population, even with the new therapies. We believe emricasan could play an important role in extending life for patients that still require a transplant as a result of not achieving a cure by next-generation agents.
Development Plans
We are planning a randomized, double-blind, placebo-controlled trial in the HCV-POLT population that we expect may serve as a single Phase 3 registration study to support a marketing authorization application, or MAA, filing in the EU. While the study is designated a Phase 3 study in the EU, the study is designated a Phase 2b study in the United States. We plan to seek further discussions with the FDA to determine if the study may be used to support the filing of an NDA with the FDA upon completion. This 260-patient study will enroll patients who have undergone a liver transplant and show demonstrable fibrosis on liver histology. Patients eligible for this study will include those who have had unsuccessful antiviral treatment prior to or following liver transplant; those who in the opinion of the treating physician are not suitable candidates for antiviral treatment; and/or those who are unable to tolerate antiviral treatment for HCV. Patients will be randomized to receive either placebo or 25 mg of emricasan BID. The study will be a two-year dosing study with a three-year follow up. The primary endpoint will be liver histology, specifically the presence or absence of disease progression as measured by the standard Ishak Fibrosis Score, which stages the severity of fibrosis and/or cirrhosis on a 0-6 scale. Changes in ALT, AST and cCK18 will also be measured in this study. We expect to initiate this trial in the second half of 2013.
We have filed for orphan drug designation for the HCV-POLT indication in the EU and the United States, but have not yet received responses from the regulatory bodies in these jurisdictions. A European Scientific Advice meeting with the Committee for Medicinal Products for Human Use (CHMP) for HCV-POLT is being planned for mid-2013. This Scientific Advice meeting will define the specific requirements and deliverables that will be required in order to qualify for single registration study status throughout Europe. It will also define the patient safety databases that will be required as well as the additional supportive clinical studies such as drug-drug interaction studies (if any) that will be required for the MAA in Europe.
Future Indications
Due to its mechanism of action and the presence of apoptosis and inflammation in many liver diseases, we believe there may be several patient populations that could potentially benefit from emricasan, including those with liver fibrosis resulting from viral hepatitis, alcoholic hepatitis and NASH. At this time, we do not plan to explore these indications; however we may seek partners to pursue the evaluation of these potential indications. We are currently supporting a pilot study funded by the National Institute on Alcohol Abuse and Alcoholism (NIAAA) in patients with alcoholic hepatitis. This exploratory study is a placebo-controlled study which will be conducted at three centers in the United States over four years and will assess patient survival as the primary endpoint.
Commercialization Strategy
We expect that the majority of ACLF, CLF and HCV-POLT patients will be treated at tertiary care centers and transplant centers and therefore can be addressed with a targeted sales force. We intend to build our own commercial infrastructure in North America and the EU to target these centers. We believe we are well-positioned to retain commercialization rights for emricasan for ACLF, CLF and HCV-POLT in the United States and the EU while considering opportunities to partner in other territories or for other indications.
Manufacturing
Pfizer completed a significant portion of the manufacturing process optimization needed to provide an efficient synthesis of active pharmaceutical ingredient, or API, and scale-up for registration trials. API was successfully
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produced under current Good Manufacturing Practices, or cGMP, conditions, and a strategy to scale up the API for commercialization is in development. We have adequate cGMP API to support Phase 2 and Phase 3 clinical trials. We have secured a contractor that is capable of making sufficient quantities of the drug product. Both API and the drug product have demonstrated sufficient stability characteristics in our studies conducted to date. A number of dosage forms are being developed including capsule, powder-in-capsule, tablet, and alternate dosage forms suitable for pediatric administration.
Competition
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we believe that we hold a leading position in our understanding of caspase inhibition related to liver disease, our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
There are currently no therapeutic products approved for the treatment of ACLF, CLF or HCV-POLT. There are a number of marketed therapeutics used in each of these diseases to try to remove the underlying cause of the disease and prevent further liver injury. For example, if the liver damage is a result of HBV or HCV, marketed antiviral medications may be used to treat the virus that led to liver damage. If the liver damage is a result of alcoholic hepatitis, marketed alcohol addiction drugs may be used. If the liver damage is a result of obesity, diet and exercise may be prescribed along with marketed therapeutics. If the liver damage is a result of NASH, marketed drugs such as insulin sensitizers (e.g., metformin), antihyperlipidemic agents (e.g., gemfibrozil), pentoxifylline and ursodiol are generally used, although none of these are approved for NASH. In addition to the marketed drugs for those indications, there are drugs in development for each of these indications. Although these marketed therapies and those in development may be efficacious, all of them take time to show an effect and as long as the underlying conditions persist there will continue to be damage to the liver. Emricasan is the only therapeutic we are aware of that is being developed specifically to reduce the level of apoptosis in the liver and as a result it may be used with these other therapies.
In addition, the HCV landscape is expected to evolve dramatically over the next five to ten years with the introduction of new interferon-free regimens, which are expected to reach the market as soon as 2015, and next generation interferon-free regimens, which may reach the market by as early as 2016, with greater efficacy and tolerability over the current antiviral therapies. Based on market research we commissioned, we estimate that treatment rates pre-transplantation would need to be 100% and cure rates would have to exceed 97% before the supply of liver transplants would outstrip the need for transplant on an annual basis. Therefore, we expect that there will continue to be a significant unmet need in the HCV-POLT population.
Material Contracts
Pfizer Inc.
In July 2010, we entered into a Stock Purchase Agreement with Pfizer pursuant to which we acquired all of the outstanding capital stock of Idun, a wholly-owned subsidiary of Pfizer at the time, in consideration for an upfront payment of $250,000 and a promissory note in the principal amount of $1.0 million. The promissory note matures in July 2020, subject to acceleration upon specified events of default, including a change of control transaction, our failure to timely pay any principal or interest when due, our failure to timely provide certain financial information to Pfizer, the creation of any lien on our property other than permitted liens, any disposition of our business or property other than permitted transfers, our payment of dividends or other distributions on our equity securities, our incurrence of any indebtedness other than permitted indebtedness, our involvement in liquidation, dissolution, bankruptcy or similar proceedings, our failure to notify Pfizer of certain material adverse events, our failure to repay any indebtedness that causes an aggregate of $2.0 million or more in such
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indebtedness to accelerate in maturity, and the rendering of certain judgments against us. The note bears interest at 7% per year, compounded quarterly. Interest is payable on a quarterly basis during the term of the note. We have the right to prepay the promissory note at any time. We will also be required to make additional payments to Pfizer totaling $18.0 million upon the achievement of specified regulatory milestones relating to emricasan.
Idun Pharmaceuticals, Inc.
In January 2013, we conducted a spin-off of our subsidiary Idun Pharmaceuticals, Inc., or Idun Pharma (which we had acquired from Pfizer in the transaction described above), to our stockholders at that time. Immediately prior to the spin-off, all rights relating to emricasan were distributed to us pursuant to a distribution agreement. The assets remaining in Idun Pharma at the time of the spin-off consisted solely of intellectual property rights and license and collaboration agreements unrelated to emricasan. The spin-off was conducted as a dividend of all of the outstanding capital stock of Idun Pharma to our stockholders and, as a result, we no longer own any capital stock of Idun Pharma. The aggregate value of Idun Pharma at the time of the spin-off was deemed to be $9.6 million based on the valuation of an independent appraisal firm.
Also in connection with the spin-off, we contributed $500,000 to Idun Pharma to provide for its initial working capital requirements and entered into a transition services agreement to provide operating services to Idun Pharma, generally consisting of accounting support, technology license administration and intellectual property maintenance. Idun Pharma must pay us for all direct costs as well as overhead and general and administrative expenses incurred in performing these services. As of March 31, 2013, Idun Pharma had not made any payments to us for any services provided under the transition services agreement. The initial term of the transition services agreement ends on December 31, 2013, and will renew automatically for successive one year periods unless terminated by either Idun Pharma or us upon 90 days prior notice to the other party.
Idun Pharma Sublicense Agreement
In March 2013, we entered into a sublicense agreement with Idun Pharma in which we were granted the right to use the patent rights and know-how related to the screening and identification of emricasan. These rights were previously granted to Idun Pharma under license agreements with Thomas Jefferson University, or TJU. Under the sublicense, we are required to pay directly to TJU a royalty of less than one percent on net sales of emricasan. We also have the right to grant further sublicenses to third parties and are required to pay TJU a portion of any such sublicense revenue we receive. The sublicense agreement will expire upon the date which there are no longer any valid claims in any patents or patent applications sublicensed to us, unless earlier terminated. Idun Pharma may terminate the agreement upon a material uncured default.
Intellectual Property
The proprietary nature of, and protection for our product candidates and discovery programs and know-how are important to our business. We have sought patent protection in the United States and internationally for emricascan, crystalline forms of emricasan and certain methods of treatment with emricasan. In addition, we have patent protection covering certain other preclinical stage compounds. Our policy is to pursue, maintain and defend patent rights whether developed internally or licensed from third parties and to protect the technology, inventions and improvements that are commercially important to the development of our business.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes. For this and more comprehensive risks related to our intellectual property, please see Risk FactorsRisks Related to Our Intellectual Property.
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Our patent portfolio for emricasan contains patents directed to the composition of matter, crystalline forms and methods of use. As of April 25, 2013 we have received three U.S. patents and corresponding foreign patents and patent applications directed to the composition of matter. Foreign patents have been granted in Australia, Austria, Belgium, Canada, China, Denmark, Europe, Finland, France, Germany, Great Britain, Greece, Hong Kong, India, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Portugal, Singapore, South Africa, South Korea, Spain, Sweden and Switzerland. Patent applications are pending in Poland. We expect that the composition of matter patent, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, will expire in 2018 (U.S.) and 2019 (international). It is possible that the term of a composition of matter patent in the United States could be extended up to five additional years under the provisions of the Hatch-Waxman Act. Patent term extension may be available in certain foreign countries upon regulatory approval.
Our patent portfolio includes patents directed to crystalline forms and methods of use of emricasan. As of April 25, 2013 we have received one U.S. patent and corresponding foreign patents and patent applications directed to crystalline forms of emricasan. Foreign patents have been granted in Australia, Canada, Mexico, Singapore, South Africa, South Korea and Taiwan. We received notification from the European Patent Office of intention to grant a patent on the patent application in Europe. Additional applications are pending in Argentina, China, Hong Kong, India, Japan, Norway and Thailand. We expect that the crystalline forms and methods of use patent, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, will expire in 2028 (U.S.) and 2027 (international). It is possible that the term of a crystalline forms patent in the United States could be extended up to five additional years under the provisions of the Hatch-Waxman Act. Patent term extension may be available in certain foreign countries upon regulatory approval.
Our patent portfolio includes patents directed to certain methods of use of emricasan. As of April 25, 2013, we have received five U.S. patents and corresponding foreign patents and patent applications directed to methods of use of emricasan. Foreign patents have been granted in Europe, France, Germany, Great Britain, Ireland, Italy, Japan and Spain. We expect that the methods of use patents, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, will expire in 2017.
Government Regulation
Government authorities in the United States (at the federal, state and local level) and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products such as those we are developing. Emricasan and any other drug candidates that we develop must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries.
United States Drug Development Process
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include, among other actions, refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug may be marketed in the United States generally involves the following:
| Completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies in accordance with applicable regulations, including the FDAs Good Laboratory Practice, or GLP, regulations; |
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| Submission to the FDA of an IND which must become effective before human clinical trials may begin; |
| Performance of adequate and well-controlled human clinical trials in accordance with applicable regulations, including the FDAs current good clinical practice, or GCP, regulations to establish the safety and efficacy of the proposed drug for its proposed indication; |
| Submission to the FDA of an NDA for a new drug product; |
| A determination by the FDA within 60 days of its receipt of an NDA to accept the NDA for filing and review; |
| Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDAs current good manufacturing practice, or cGMP, regulations to assure that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity; |
| Potential FDA audit of the preclinical and/or clinical trial sites that generated the data in support of the NDA; and |
| FDA review and approval of the NDA. |
Before testing any compounds with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the drug candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human studies. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trial.
Clinical trials involve the administration of the drug candidate 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 GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the 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. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers issues such as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the 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 are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
| Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion, the side effects associated with increasing doses, and if possible, to gain early evidence of effectiveness. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. |
| Phase 2. The drug is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases or conditions and to |
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determine dosage tolerance, optimal dosage and dosing schedule. Phase 2 trials can be further divided into Phase 2a and Phase 2b trials. Phase 2a trials are typically are smaller and shorter in duration, and generally consist of patient exposure-response trials which focus on proving the hypothesized mechanism of action. Phase 2b trials are typically higher enrolling and longer in duration, and generally consist of patient dose-ranging trials which focus on finding the optimum dose at which the drug shows clinical benefit with minimal side effects. |
| Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall benefit/risk ratio of the product and provide an adequate basis for product approval. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA. Phase 3 clinical trials usually involve several hundred to several thousand participants. |
Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These studies 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 studies.
The FDCA permits the FDA and an IND sponsor to agree in writing on the design and size of clinical studies intended to form the primary basis of a claim of effectiveness in an NDA. This process is known as a Special Protocol Assessment, or SPA. An SPA agreement may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA, or if the FDA determines that a substantial scientific issue essential to determining the safety or effectiveness of the drug was identified after the testing began. For certain types of protocols, including carcinogenicity protocols, stability protocols, and Phase 3 protocols for clinical trials that will form the primary basis of an efficacy claim, the FDA has agreed under its performance goals associated with the Prescription Drug User Fee Act, or PDUFA, to provide a written response on most protocols within 45 days of receipt. However, the FDA does not always meet its PDUFA goals, and additional FDA questions and resolution of issues leading up to an SPA agreement may result in the overall SPA process being much longer, if an agreement is reached at all.
Progress reports detailing the results of the clinical trials 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 adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical trials may fail to be completed successfully within any specified period, if at all. The FDA, the IRB, 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 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 data monitoring committee. This group provides authorization for whether or not a trial may move forward at designated checkpoints based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
FDA Review and Approval Processes
The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The
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application includes both negative or ambiguous results of preclinical and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, 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 effectiveness of the investigational drug product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. However, if only one indication for a product has orphan designation, a pediatric assessment may still be required for any applications to market that same product for the non-orphan indication(s).
The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months from the 60-day filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six months for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the products identity, strength, quality and purity. The FDA may refer applications for novel drug or biological products or drug or biological 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. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical sites to assure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it may 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. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an 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, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA 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.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the
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product labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. For example, the FDA may require Phase 4 testing which involves clinical trials designed to further assess a drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also determine that a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. 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. Following approval of an NDA with a REMS, the sponsor is responsible for marketing the drug in compliance with the REMS and must submit periodic REMS assessments to the FDA.
Orphan Drug Designation
In the United States, under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition. Such diseases and conditions are those that affect fewer than 200,000 individuals in the United States, or if they affect more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting an NDA. If the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by that agency. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but it can lead to financial incentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug marketing exclusivity for a period of seven years. Orphan drug marketing exclusivity generally prevents the FDA from approving another application, including a full NDA, to market the same drug or biological product for the same indication for seven years, except in limited circumstances, including if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. For purposes of small molecule drugs, the FDA defines same drug as a drug that contains the same active chemical entity and is intended for the same use as the drug in question. A designated orphan drug may not receive orphan drug marketing exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Orphan drug marketing exclusivity rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
We have submitted applications for orphan drug designation for emricasan for HCV-POLT in the United States and the EU, but have not yet received responses from the regulatory bodies in those jurisdictions. We plan to submit applications for orphan drug designation for ACLF in the United States and EU in the second half of 2013.
Expedited Development and Review Programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Unique to a Fast Track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
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Any product submitted to the FDA for approval, including a product with a Fast Track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Drug products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has 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, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
The FDA may also accelerate the approval of a designated breakthrough therapy, which is a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The sponsor of a breakthrough therapy may request the FDA to designate the drug as a breakthrough therapy at the time of, or any time after, the submission of an IND for the drug. If FDA designates a drug as a breakthrough therapy, it must take actions appropriate to expedite the development and review of the application, which may include holding meetings with the sponsor and the review team throughout the development of the drug; providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug to ensure that the development program to gather the nonclinical and clinical data necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor; and taking steps to ensure that the design of the clinical trials is as efficient as practicable, when scientifically appropriate, such as by minimizing the number of patients exposed to a potentially less efficacious treatment.
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. We plan to explore rapid approval opportunities (e.g., Fast Track designation, priority review, accelerated approval and/or breakthrough therapy designation) for emricasan as appropriate for our targeted indications.
Post-Approval Requirements
Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, and complying with FDA promotion and advertising requirements, which include, among other requirements, standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drugs approved labeling (known as off-label use), limitations on industry sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.
In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. cGMP
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regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, recall or withdrawal of the product from the market. In addition, changes to the manufacturing process are strictly regulated, and depending on the significance of the change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
The FDA also may require Phase 4 testing and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a products approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures, such as a REMS. Also, new government requirements, including those resulting from new legislation, may be established, or the FDAs policies may change, which could delay or prevent regulatory approval of our products under development.
United States Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the 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 plus the time between the submission date of an NDA and the approval of that application. 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 U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for one of 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.
Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain competing marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an 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 drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, 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 to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an 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
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to the approval of the application, for example, clinical investigations to support new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of any 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 and clinical trials necessary to demonstrate safety and effectiveness.
Other types of non-patent marketing exclusivity include orphan drug exclusivity under the Orphan Drug Act, which may offer a seven-year period of marketing exclusivity as described above, and pediatric exclusivity under the Best Pharmaceuticals for Children Act, which may add six months to existing exclusivity periods and patent terms. This six-month pediatric exclusivity may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued Written Request for such a trial.
Foreign Government Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales, promotion and distribution of our products.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application much like an IND prior to the commencement of human clinical trials. In the EU, for example, a clinical trial application, or CTA, must be submitted to each countrys national health authority and an independent ethics committee, much like the FDA and IRB requirements in the United States, respectively. Once the CTA is approved in accordance with a countrys requirements, clinical trials may proceed.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of a new drug under EU regulatory systems, we must submit a marketing authorization application. The application used to file the NDA in the United States is similar to that required in the EU, with the exception of, among other things, country-specific document requirements.
For other countries outside of the EU, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject in those countries to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
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 care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for medical products and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not
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cover our product candidates could reduce physician usage of our products once approved and have a material adverse effect on our sales, results of operations and financial condition.
Fraud and Abuse Laws
We will also be subject to several healthcare regulation and enforcement by the federal government and the states and foreign governments in which we will conduct our business once our products are approved. The laws that may affect our ability to operate include:
| the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; |
| the federal healthcare programs Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; |
| federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; |
| federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and |
| state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers. |
Employees
As of April 30, 2013, we had 16 employees, 14 of whom are full-time, seven of whom hold Ph.D. or M.D. degrees, ten of whom were engaged in research and development activities and six of whom were engaged in business development, finance, information systems, facilities, human resources or administrative support. None of our employees is subject to a collective bargaining agreement. We consider our relationship with our employees to be good.
Facilities
We lease approximately 5,349 square feet of space for our headquarters in San Diego, California under an agreement that expires in June 2013. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.
Legal Proceedings
We are currently not a party to any material legal proceedings.
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Executive Officers and Directors
The following table sets forth the name, age and position of each of our executive officers, key employees and directors as of March 31, 2013.
Name |
Age | Position | ||||
Executive Officers |
||||||
Steven J. Mento, Ph.D. |
61 | President, Chief Executive Officer and Director | ||||
Alfred P. Spada, Ph.D. |
55 | Senior Vice President, R&D, Chief Scientific Officer | ||||
Gary C. Burgess, M.B., Ch.B. M.Med. |
51 | Senior Vice President, Clinical Research, Chief Medical Officer | ||||
Charles J. Cashion |
62 | Senior Vice President, Finance, Chief Financial Officer, Secretary | ||||
Key Employee |
||||||
Daniel L. Ripley |
52 | Senior Director, Head of Corporate Development | ||||
Directors |
||||||
David F. Hale(1)(3) |
64 | Chairman of the Board of Directors | ||||
William Gerber, M.D.(1) |
66 | Director | ||||
Paul H. Klingenstein(2) |
57 | Director | ||||
Louis Lacasse(2) |
56 | Director | ||||
Shahzad Malik, M.D.(2) |
46 | Director | ||||
Marc Perret(3) |
54 | Director | ||||
James Scopa(1) |
54 | Director | ||||
Harold Van Wart, Ph.D.(3) |
65 | Director |
(1) | Member of the compensation committee |
(2) | Member of the audit committee |
(3) | Member of the nominating and corporate governance committee |
Executive Officers
Steven J. Mento, Ph.D. is one of our co-founders and has served as our President and Chief Executive Officer and as a member of our board of directors since July 2005. From July 2005 until December 2012, Dr. Mento also served as chairman of our board of directors. Dr. Mento has over 30 years of combined experience in the biotechnology and pharmaceutical industries. From 1997 to 2005, Dr. Mento was President, Chief Executive Officer and a member of the Board of Directors of Idun Pharmaceuticals, Inc. Dr. Mento guided Idun during its transition from a discovery focused organization to a drug development company with multiple products in or near human clinical testing. In April 2005, Idun was sold to Pfizer Inc. Previously, Dr. Mento served as President of Chiron Viagene, Inc. (subsequently Chiron Technologies, Center for Gene Therapy), and Vice President of Chiron Corporation from 1995 to 1997. Dr. Mento was Vice President of R&D at Viagene from 1992 to 1995. Prior to Viagene, Dr. Mento held various positions at American Cyanamid Company from 1982 to 1992. His last position was Director of Viral Vaccine Research and Development at Lederle-Praxis Biologicals, a business unit of American Cyanamid. Dr. Mento currently serves on the boards of directors of BIOCOM, the Biotechnology Industry Organization (BIO), BIO Emerging Company Section Governing Body, BIO Health Section Governing Body, Sangamo Biosciences, Inc., and various academic and charitable organizations. Dr. Mento holds a B.A. in Microbiology from Rutgers College, and an M.S. and Ph.D. both in Microbiology from Rutgers University. Dr. Mentos extensive knowledge of our business, as well as his over 30 years of experience in the biotechnology and pharmaceutical industries, including executive leadership in several pharmaceutical companies, contributed to our board of directors conclusion that he should serve as a director of our company.
Alfred P. Spada, Ph.D. is one of our co-founders and has served as our Senior Vice President, Research and Development since July 2005, and as our Chief Scientific Officer since April 2012. Dr. Spada has over 28 years of
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experience in the pharmaceutical and biotechnology industries. He has co-authored more than 50 scientific publications and is an inventor on more than 70 patents. From 2000 to 2005, Dr. Spada was Vice President of Pharmaceutical and Preclinical Development at Idun Pharmaceuticals where he was responsible for managing internal research and development activities, and Iduns external partnerships, including the collaboration with Abbott Laboratories. Prior to joining Idun, Dr. Spada was a Department Director at Aventis Pharmaceuticals (formerly Rhone-Poulenc Rorer), where he was responsible for medicinal and analytical chemistry. From 1990 to 2000, his teams worked on a wide variety of enzyme-based and G-protein coupled receptors (GCPR) targets, resulting in the identification of clinical candidates for treatment of acute myocardial infarction, thrombotic disorders, coronary restenosis, lipid lowering, diabetes and cancer. His team discovered otamixaban, a direct acting factor Xa inhibitor currently in Phase 3 clinical trials for the treatment of acute coronary syndrome. Dr. Spada holds a B.S. in Chemistry from Worcester Polytechnic Institute and a Ph.D. in Chemistry from the Massachusetts Institute of Technology.
Gary C. Burgess M.B., Ch.B. M.Med.(Int.)(Stell.) MFPM has served as our Senior Vice President, Clinical Research, and Chief Medical Officer since November 2011. In April 2012, he was appointed to the Population and Systems Medicine Board at the Medical Research Council. Dr. Burgess has over 14 years of experience in the pharmaceutical industry. From 1999 to October 2011, Dr. Burgess held positions of increasing seniority at Pfizer Ltd in Sandwich in the United Kingdom, most recently as Senior Director and Clinical Portfolio Lead for Asia Research. In this position, he had clinical oversight of all aspects of the Pfizer liver fibrosis program including clinical program design, development and execution, regulatory and key opinion leader interactions, and evaluation and establishment of external collaborations for fibrotic disease biomarker development. During the period following the acquisition of Idun Pharmaceuticals by Pfizer, Dr. Burgess responsibilities included data integration, clinical oversight of ongoing Phase 2 studies, development of clinical plans and registration strategies for the Idun caspase inhibitor, IDN-6556, which was later renamed emricasan. Dr. Burgess has also previously held the position of Medical Development Team Leader for Thelin in the Pfizer Specialty Care Business Unit and from 2001 to 2004 was the clinician responsible for the studies with sildenafil in Pulmonary Arterial Hypertension which led to the registration of Revatio in 2005. Prior to joining Pfizer, Dr. Burgess held the position of Principal Consultant and Head of the Intensive Care Unit and Casualty Department at II Military Hospital in Cape Town, South Africa, as well as holding honorary consultant posts in the Gastroenterology Departments at both Tygerberg and Groote Schuur Hospitals, in addition to conducting a limited private practice as a general internist. Dr. Burgess holds a M.B., Ch.B. and M.Med. in Internal Medicine from the University of Stellenbosch, South Africa, and a diploma in Pharmaceutical Medicine from Cardiff University, United Kingdom.
Charles J. Cashion is one of our co-founders and has served as our Senior Vice President, Finance, Chief Financial Officer, and Secretary since July 2005. From 2001 to 2005, Mr. Cashion was Chief Financial Officer at Idun. Mr. Cashion has held several senior level management positions in both private and public healthcare companies with responsibilities for securing and executing various types of financings including initial public offerings, secondary offerings, corporate partnerships, and debt. He has also been involved with the strategic planning, acquisition and integration of several technology companies. Mr. Cashion joined Idun Pharmaceuticals in 2001 as Executive Vice President, Chief Financial Officer and Secretary. Previously, Mr. Cashion held the position of Senior Vice President and Chief Financial Officer of Quidel Corporation, a publicly-held medical diagnostics company. For the prior nine years, Mr. Cashion was Senior Vice President, Finance, and Chief Financial Officer of The Immune Response Corporation, a publicly-held biopharmaceutical company. During the period from 1980 to 1989, Mr. Cashion was Executive Vice President and Chief Financial Officer of Smith Laboratories, Inc., a publicly-held pharmaceutical company and during 1987 through 1989 was also President and Chief Executive Officer of Sutter Corporation, an orthopedic products subsidiary of Smith Laboratories. Mr. Cashion also held positions at Baxter International, Inc. and Motorola, Inc. Mr. Cashion currently serves on the boards of directors of NovaBay Pharmaceuticals, Inc., Ridge Diagnostics, Inc., La Jolla Institute for Allergy & Immunology, and iDiverse, Inc. Mr. Cashion holds an M.B.A. and B.S. in Accounting from Northern Illinois University.
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Key Employee
Daniel L. Ripley has served as our Senior Director, Head of Corporate Development since July 2012. Mr. Ripley has 15 years of integrated business development experience in the initiation and execution of strategic business transactions in emerging growth life science companies. He has led licensing, commercial analysis, partnering initiatives, and intellectual property enforcement to drive business development of early-to-late stage products in a wide variety of therapeutic areas and technologies. Mr. Ripley served as Senior Director of Business Development at Apricus Biosciences from 2011 through 2012, and prior to that was a senior business development consultant to biotechnology companies in the San Diego area from 2010 through 2011, Vice President of Business Development at BioBlocks, Inc. from 2009 through 2010, Senior Director, Head of Business Development at Kalypsys, Inc. from 2006 through 2008, and Director of Business Development at Isis Pharmaceuticals from 2000 through 2006. During this timeframe, he executed multiple licensing and drug discovery collaborations with pharmaceutical and biotechnology companies that included Pfizer, Oncogenex, Alnylam, Amgen, GSK, Sanofi, and Alcon. Mr. Ripley holds an M.B.A. with an emphasis in Finance and a B.S. in Microbiology, both from San Diego State University.
Non-Employee Directors
David F. Hale has served as a member of our board of directors since October 2006 and chairman of the board since December 2012. Since May 2006, Mr. Hale has served as Chairman & CEO of Hale BioPharma Ventures, a private company focused on the formation and development of biotechnology and specialty pharma companies. He was previously President and CEO of CancerVax Corporation which merged with Micromet, Inc., a cancer therapeutic company, from October 2000 through May 2006, when he became Chairman of the combined companies. Mr. Hale is a serial entrepreneur who has been involved in the founding and/or development of a number of biotechnology and specialty pharmaceutical companies. After joining Hybritech, Inc., in 1982, the first monoclonal antibody company, he was President & Chief Operating Officer and became CEO in 1986, when Hybritech was acquired by Eli Lilly and Co. From 1987 to 1997 he was Chairman, President and CEO of Gensia, Inc., which merged with SICOR to become Gensia Sicor, Inc., which was acquired by Teva Pharmaceuticals. He was a co-founder and Chairman of Viagene, Inc. from 1987 to 1995, when Viagene was acquired by Chiron, Inc. He was President and CEO of Women First HealthCare, Inc. from late 1997 to June 2000. Prior to joining Hybritech, Mr. Hale was Vice President and General Manager of BBL Microbiology Systems, a division of Becton, Dickinson & Co. and from 1971 to 1980, held various marketing and sales management positions with Ortho Pharmaceutical Corporation, a division of Johnson & Johnson, Inc. Mr. Hale is Chairman of Santarus, Inc., a publicly-held company, and previously served as Chairman of Somaxon, Inc. prior to its acquisition in 2013. He also serves as Chairman of privately-held Colorescience, Inc., Ridge Diagnostics, Crisi, Inc., Intrepid Therapeutics, Neurelis, Inc., Agility Clinical, Advantar Laboratories, Inc. and Katama Pharmaceuticals, Inc. Mr. Hale also is a co-founder and serves on the Board of Directors of BIOCOM, is a former member of the Board of the Biotechnology Industry Organization (BIO), and the Biotechnology Institute. Mr. Hale also serves on the Board of Directors of the San Diego Economic Development Corporation, and as Chairman of the Board of Trustees of Rady Childrens Hospital of San Diego. He is a co-founder of the CONNECT Program in Technology and Entrepreneurship. Mr. Hale holds a B.A. in Biology and Chemistry from Jacksonville State University. Mr. Hales extensive knowledge of our business and history, experience as a board member of multiple publicly-traded and privately-held companies, and expertise in developing, financing and providing strong executive leadership to numerous biopharmaceutical companies contributed to our board of directors conclusion that he should serve as a director of our company.
William Gerber, M.D. has served as a member of our board of directors since October 2006. Dr. Gerber is an Investment Partner at Bay City Capital and has been with the firm since September 1999. He was most recently President and Chief Executive Officer of Epoch BioSciences, which was acquired by Nanogen in 2004. Prior to joining Epoch, Dr. Gerber served as President and Chief Executive Officer of diaDexus LLC, a joint venture established by Incyte Pharmaceuticals and SmithKline Beecham to apply genomics to the discovery of novel diagnostic products. Dr. Gerber previously served as Vice President and Chief Operating Officer of Onyx Pharmaceuticals, as President of Chiron Diagnostics, and as Senior Vice President and General Manager of the PCR Division of Cetus Corporation. Dr. Gerber is a member of the board of directors of Aviir, Inc., International
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Technidyne Corporation (ITC), Nabsys, Inc. and Synergenesis, Inc. He also served on and was President of the Board of Medical Quality Assurance, State of California. He holds an M.D. and a B.M.S. from University of California, San Francisco Medical Center and previously attended Dartmouth College for three years. Dr. Gerbers extensive leadership experience and experience as a venture capital investor in the biotechnology and pharmaceuticals industries contributed to our board of directors conclusion that he should serve as a director of our company.
Paul H. Klingenstein has served as a member of our board of directors since October 2005. Mr. Klingenstein has been a venture capital investor for most of his professional career. Beginning at Warburg, Pincus in the early 1980s, he joined Accel Partners in 1986 and helped, through the next decade, to build a leading venture capital firm. After a brief period as an advisor to the Rockefeller Foundation, he formed Aberdare Ventures in 1999, and has served as a Managing Partner since that time. During this period, he has invested in more than 50 companies, the majority of which are now public, or have been merged into public companies. These investments comprise mostly early-stage domestic businesses, but also include later-stage, public, and non-U.S. companies, and management buyouts. Mr. Klingenstein currently serves on the boards of directors of Anacor Pharmaceuticals, Aviir, Clovis Oncology, Elation ERM, EnteroMedics, and MC10, Inc. He has previously served on the boards of Ablation Frontiers, Ample Medical, Aviron, EP Technologies, Glycomed, Idun Pharmaceuticals, Isis Pharmaceuticals, Nevro Corporation, Pharmion, Posit Science, VertiFlex, U.S. Behavioral Health Viagene, and Xomed Surgical Products. Mr. Klingenstein is also serving as Chairman of the Board of the International AIDS Vaccine Initiative and is a board member of the MacArthur Foundation. He has served on the boards of various educational and non-profit institutions, including the African Wildlife Foundation, Juma Ventures, Marin Country Day School, the Taft School, and the University of California Berkeley School of Public Health. He holds an A.B. from Harvard College and an M.B.A. from Stanford University. Mr. Klingensteins extensive experience as a venture capital investor in over 50 companies in the biotechnology and pharmaceuticals industries, as well as his experience as a director for numerous public companies, contributed to our board of directors conclusion that he should serve as a director of our company.
Louis Lacasse has served as a member of our board of directors since February 2011. Mr. Lacasse has been President of GeneChem Management Inc. since 1997 and Managing Partner of AgeChem Financial Inc. since 2006. GeneChem and AgeChem are managing three lifesciences venture capital funds which have invested in more than 40 companies in Canada, the United States and Europe. Prior to joining GeneChem, Mr. Lacasse worked at the Caisse de dépôt et de placement du Québec, where he held several positions between 1987 and 1997, including Vice-President of Sofinov, a private placement subsidiary of the Caisse which focused on biotechnology, information technology and industrial technology. Before joining the Caisse, Mr. Lacasse worked as a financial analyst with the National Bank of Canada, as Account Manager at the Bank of Montreal and as Project Manager at the Centre de Développement Technologique. He has also owned a small retail company. Mr. Lacasse currently serves on the boards of directors of Calyx Bio-Ventures Inc., Botaneco Corp. and Alethia Biotherapeutics, Inc. He also has served on the boards of directors of BioChem Pharma Inc., Axcan Pharma Inc., Targeted Genetics Inc., Methylgene Inc. and Idun Pharmaceuticals Inc. Mr. Lacasse holds a bachelors degree in finance from the Ecole des Hautes Etudes Commerciales and an M.B.A. from McGill University. Mr. Lacasses extensive experience as a board member and chairman of audit and compensation committees of numerous public companies, as well as his extensive experience as a venture capital investor in over 40 companies in the biotechnology and pharmaceuticals industries, contributed to our board of directors conclusion that he should serve as a director of our company.
Shahzad Malik, M.D. has served as a member of our board of directors since February 2009. Dr. Malik is a General Partner at Advent Venture Partners, a position he has held since 1999. During his time with Advent, he has been actively involved with numerous investments in Europe and the United States in the biopharmaceutical and medical device arenas in a variety of therapeutic areas. A number of these are now publicly traded or have been acquired. Prior to joining Advent, Dr. Malik spent six years practicing medicine before joining the London office of management consultants McKinsey & Company. While there he served international clients in the Healthcare and Investment Banking sectors. Dr. Malik holds an M.A. from Oxford University and a M.D. from Cambridge
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University. He subsequently specialized in interventional cardiology while also pursuing research interests in heart muscle disorders both in the clinic and basic science laboratory. Dr. Maliks medical background and training and his extensive experience as a venture capital investor in the biopharmaceutical and medical device industries, contributed to our board of directors conclusion that he should serve as a director of our company.
Marc Perret has served as a member of our board of directors since December 2006. Mr. Perret is a Managing Partner at Gilde Healthcare Partners (Utrecht, The Netherlands), a position he has held since December 2006. Mr. Perret is involved with fund raising, fund management, as well as investment activities. He represents or represented Gilde Healthcare Partners on the boards of portfolio companies, such as Belgium-based Crop Design (sold to BASF), France-based Innate Pharma (listed on EuroNext) and France-based Neuro3d (merged with Evotec AG). Prior to joining Gilde Healthcare Partners in October 2000, Mr. Perret gained operational and international experience during 17 years at the Novartis [Ciba] Group, in business development, restructuring, as country division head and ultimately as M&A Head of one of Novartis divisions. His track record includes a $1 billion acquisition of a Merck & Co. division, direct involvement in the multi-billion merger and listing of Switzerland-based Syngenta, and several smaller biotechnology deals. Mr. Perret is an engineer from Ecole Centrale de Lyon and received an M.B.A. from HEC Group / Stanford GSB. Mr. Perrets experience as a venture capitalist investing in and serving on the boards of multiple life sciences companies and his extensive operational and international experience in the biopharmaceutical industry contributed to our board of directors conclusion that he should serve as a director of our company.
James Scopa has served as a member of our board of directors since March 2011. Mr. Scopa is a Managing Director in MPM Capitals San Francisco office, having joined the firm in 2005. Previously, Mr. Scopa spent 18 years advising growth companies in biopharmaceuticals and medical devices at Deutsche Banc Alex. Brown and Thomas Weisel Partners. At Deutsche Banc Alex. Brown he served as Managing Director and Global Co-Head of Healthcare Investment Banking. At Thomas Weisel Partners he served on the Investment Committee for TWPs Health Care venture fund as well as Co-Director of Healthcare Investment Banking. He holds an A.B. from Harvard College (Phi Beta Kappa), an M.B.A. from Harvard Business School and a J.D. from Harvard Law School. Mr. Scopa currently serves on the boards of directors of Astute Medical, Inc., iPierian, Solasia Pharma K.K., and TriVascular, Inc., and has previously served on the board of Peplin, Inc. (sold to LEO Pharmaceuticals). Mr. Scopas extensive experience as a venture capital investor in the biotechnology and biopharmaceuticals industries, prior experience as an investment banker in those industries, and his service as a director for numerous companies, contributed to our board of directors conclusion that he should serve as a director of our company.
Harold E. Van Wart, Ph.D. has served as a member of our board of directors since March 2007. Dr. Van Wart has served as Metabolex, Inc.s Chief Executive Officer since 2003, a member of its board of directors since January 2003, and President since April 2001. He served as Chief Operating Officer from December 2002 to January 2003 and Senior Vice President, Research and Development from October 2000 to December 2002. From 1999 to 2000, Dr. Van Wart was vice president and therapy head for arthritis and fibrotic diseases at Roche Biosciences, a biopharmaceutical company. From 1992 to 1999, he was vice president and director of the institute of biochemistry and cell biology at Syntex Corporation, a biopharmaceutical company acquired by Roche Biosciences in 1994. From 1978 to 1992, Dr. Van Wart served on the faculty of Florida State University. Dr. Van Wart holds a Ph.D. from Cornell University and a B.A. from SUNY Binghamton. He currently serves on the Emerging Companies and Health Section Governing Boards of BIO, as well as on its board of directors. Dr. Van Warts extensive leadership experience in the biotechnology and biopharmaceutical industries contributed to our board of directors conclusion that he should serve as a director of our company.
Board Composition and Election of Directors
Director Independence
Our board of directors currently consists of nine members. Our board of directors has determined that all of our directors, other than Dr. Mento, are independent directors in accordance with the listing requirements of The NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, including that the director is not, and has not been for at least three years, one of our employees and that neither the director
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nor any of his family members has engaged in various types of business dealings with us. In addition, as required by NASDAQ rules, our board of directors has made a subjective determination as to each independent director that no relationships exist, which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each directors business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers.
Classified Board of Directors
In accordance with the terms of our amended and restated certificate of incorporation that will go into effect immediately prior to the closing of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the closing of this offering, our directors will be divided among the three classes as follows:
| the Class I directors will be , and , and their terms will expire at our first annual meeting of stockholders following this offering; |
| the Class II directors will be , and , and their terms will expire at our second annual meeting of stockholders following this offering; and |
| the Class III directors will be , and , and their terms will expire at our third annual meeting of stockholders following this offering. |
Our amended and restated certificate of incorporation that will go into effect immediately prior to the closing of this offering will provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least 66 2/3% of our outstanding voting stock then entitled to vote in the election of directors.
Board Leadership Structure
Our board of directors is currently led by its chairman, David Hale. Our board of directors recognizes that it is important to determine an optimal board leadership structure to ensure the independent oversight of management as the company continues to grow. We separate the roles of chief executive officer and chairman of the board in recognition of the differences between the two roles. The chief executive officer is responsible for setting the strategic direction for the company and the day-to-day leadership and performance of the company, while the chairman of the board of directors provides guidance to the chief executive officer and presides over meetings of the full board of directors. We believe that this separation of responsibilities provides a balanced approach to managing the board of directors and overseeing the company.
Our board of directors has concluded that our current leadership structure is appropriate at this time. However, our board of directors will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.
Role of Board in Risk Oversight Process
Our board of directors has responsibility for the oversight of the companys risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees and members of senior management to enable our board to understand the companys risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.
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The audit committee reviews information regarding liquidity and operations, and oversees our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating/corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices, and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board as a whole.
Board Committees and Independence
Our board has established three standing committeesaudit, compensation and nominating and corporate governanceeach of which operates under a charter that has been approved by our board.
Our board has determined that all of the members of each of the boards three standing committees are independent as defined under the rules of The NASDAQ Global Market. In addition, all members of the audit committee meet the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, or the Exchange Act.
Audit Committee
The audit committees main function is to oversee our accounting and financial reporting processes, internal systems of control, independent registered public accounting firm relationships and the audits of our financial statements. This committees responsibilities include, among other things:
| selecting and engaging our independent registered public accounting firm; |
| evaluating the qualifications, independence and performance of our independent registered public accounting firm; |
| approving the audit and non-audit services to be performed by our independent registered public accounting firm; |
| reviewing the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies; |
| discussing with management and the independent registered public accounting firm the results of our annual audit and the review of our quarterly unaudited financial statements; |
| reviewing, overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; |
| reviewing with management and our auditors any earnings announcements and other public announcements regarding our results of operations; |
| preparing the report that the SEC requires in our annual proxy statement; |
| reviewing and approving any related party transactions and reviewing and monitoring compliance with our code of conduct and ethics; and |
| reviewing and evaluating, at least annually, the performance of the audit committee and its members including compliance of the audit committee with its charter. |
The members of our audit committee are Dr. Malik and Messrs. Klingenstein and Lacasse. Dr. Malik serves as the chairperson of the committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and The NASDAQ Global Market. Our board of directors has determined that Dr. Malik is an audit committee financial expert as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable NASDAQ rules and regulations. Our board of directors has determined each of Dr. Malik and Messrs. Klingenstein and Lacasse is independent under the applicable rules of the SEC and The NASDAQ Global Market. Upon the listing of our common stock on The NASDAQ Global Market, the audit committee will operate under a written charter that satisfies the applicable standards of the SEC and The NASDAQ Global Market.
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Compensation Committee
Our compensation committee reviews and recommends policies relating to compensation and benefits of our officers and employees. The compensation committee reviews and recommends corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers, evaluates the performance of these officers in light of those goals and objectives and recommends to our board of directors the compensation of these officers based on such evaluations. The compensation committee also recommends to our board of directors the issuance of stock options and other awards under our equity plan. The compensation committee will review and evaluate, at least annually, the performance of the compensation committee and its members, including compliance by the compensation committee with its charter.
The members of our compensation committee are Messrs. Hale and Scopa and Dr. Gerber. Mr. Hale serves as the chairperson of the committee. Our board has determined that each of Messrs. Hale and Scopa and Dr. Gerber is independent under the applicable rules and regulations of The NASDAQ Global Market, is a non-employee director as defined in Rule 16b-3 promulgated under the Exchange Act and is an outside director as that term is defined in Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or Section 162(m). Upon the listing of our common stock on The NASDAQ Global Market, the compensation committee will operate under a written charter, which the compensation committee will review and evaluate at least annually.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee is responsible for making recommendations to our board of directors regarding candidates for directorships and the size and composition of our board of directors. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance policies and reporting and making recommendations to our board of directors concerning governance matters. The members of our nominating and corporate governance committee are Dr. Van Wart and Messrs. Hale and Perret. Dr. Van Wart serves as the chairman of the committee. Our board has determined that each of Messrs. Hale and Perret and Dr. Van Wart is independent under the applicable rules and regulations of The NASDAQ Global Market relating to nominating and corporate governance committee independence. Upon the listing of our common stock on The NASDAQ Global Market, the nominating and corporate governance committee will operate under a written charter, which the nominating and corporate governance committee will review and evaluate at least annually.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has ever been one of our officers or employees. None of our executive officers currently serves, or has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Board Diversity
Upon consummation of this offering, our nominating and corporate governance committee will be responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:
| personal and professional integrity, ethics and values; |
| experience in corporate management, such as serving as an officer or former officer of a publicly-held company; |
| development or commercialization experience in large pharmaceutical companies; |
| experience as a board member or executive officer of another publicly-held company; |
| strong finance experience; |
| diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; |
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| diversity of background and perspective, including with respect to age, gender, race, place of residence and specialized experience; |
| conflicts of interest; and |
| practical and mature business judgment. |
Currently, our board of directors evaluates, and following the consummation of this offering will evaluate, each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.
Code of Business Conduct and Ethics
We have 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 officer or controller, or persons performing similar functions. Upon completion of this offering, our code of business conduct and ethics will be available under the Investor RelationsCorporate Governance section of our website at www.conatuspharma.com. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of The NASDAQ Global Market concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
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EXECUTIVE AND DIRECTOR COMPENSATION
This section discusses the material components of the executive compensation program for our executive officers who are named in the 2012 Summary Compensation Table below. In 2012, our chief executive officer and our two other highest-paid executive officers, or our named executive officers, were as follows:
| Steven J. Mento, Ph.D., President and Chief Executive Officer |
| Alfred P. Spada, Ph.D., Senior Vice President, R&D and Chief Scientific Officer |
| Gary C. Burgess, M.B., Ch.B. M.Med., Senior Vice President, Clinical Research, and Chief Medical Officer |
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.
2012 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers during the fiscal year ended December 31, 2012:
Name and Principal Position |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||||||||||||||
Steven J. Mento, Ph.D. |
2012 | 407,255 | | | 2,480 | | 15,754 | (2) | 425,489 | |||||||||||||||||||||||
President and Chief Executive Officer |
||||||||||||||||||||||||||||||||
Gary C. Burgess, M.B., Ch.B. M.Med. |
2012 | 280,000 | | | 1,550 | | 49,212 | (3) | 330,762 | |||||||||||||||||||||||
Senior Vice President, Clinical Research, and Chief Medical Officer |
||||||||||||||||||||||||||||||||
Alfred P. Spada, Ph.D. |
2012 | 274,866 | | | 930 | | 16,311 | (2) | 292,107 | |||||||||||||||||||||||
Senior Vice President, R&D and Chief Scientific Officer |
(1) | Amounts shown represent the aggregate grant date fair value of the option awards computed in accordance with FASB Topic ASC 718. These amounts do not correspond to the actual value that will be recognized by the named executive officer with respect to such awards. For a detailed description of the assumptions used for purposes of determining grant date fair value, see Note 2 to the consolidated financial statements included elsewhere in this prospectus. |
(2) | Amounts shown represent term life insurance, short and long-term disability insurance, long-term care insurance and matching contributions under the terms of our 401(k) plan paid by us on behalf of such named executive officers. |
(3) | Represents Dr. Burgess monthly stipend of £2,523 pounds sterling, or approximately $4,101 U.S. dollars, to purchase individually-obtained insurance and pension benefits in fiscal year 2012. The amount shown represents such compensation, converted from pounds sterling to U.S. dollars, using the exchange rate in effect on December 31, 2012. |
Narrative Disclosure to Compensation Tables
Employment Agreements
Employment Agreements with Drs. Mento and Spada
In December 2008, we entered into employment agreements with each of Drs. Mento and Spada.
Pursuant to each of the employment agreements, Drs. Mento and Spada currently receive annual base salaries of $419,473 and $283,112, respectively, which amounts are subject to annual review by and at the sole discretion
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of our board of directors or its designee. Drs. Mento and Spada will also be eligible to earn an annual cash performance bonus equal to up to 40% and 30%, respectively, of his then-current annual base salary. The annual cash performance bonus will be based on his and/or our attainment of objective financial or other operating criteria established by our board of directors or its designee, as determined by our board of directors or its designee.
Pursuant to each of the employment agreements, if we terminate such executive officers employment without cause (as defined below) or such officer resigns for good reason (as defined below), the executive officer will be entitled to the following payments and benefits: (1) his fully earned but unpaid base salary through the date of termination at the rate then in effect, plus all other amounts under any compensation plan or practice to which he is entitled; (2) a lump sum cash payment in an amount equal to his monthly base salary as in effect immediately prior to the date of termination for the 12-month period following the date of termination; and (3) continuation of health benefits for a period of 12 months following the date of termination.
Each of the employment agreements provides that the executive officers stock awards will immediately vest and become exercisable: (1) as to 100% of such awards on the date of a change of control; and (2) in the event the executive officers employment is terminated by us other than for cause or by the executive officer for good reason, as to the number of stock awards that would have vested over the 12-month period following termination had such executive officer remained continuously employed by us during such period.
For purposes of the employment agreements, cause generally means an executive officers: (1) commission of an act of fraud, embezzlement or dishonesty that has a material adverse impact on us or any successor or affiliate of ours; (2) conviction of, or entry into a plea of guilty or no contest to, a felony or any crime involving fraud, misappropriation, embezzlement or moral turpitude; (3) unauthorized use or disclosure of our confidential information or trade secrets or that of any successor or affiliate of ours that has a material adverse impact on any such entity; (4) gross negligence, insubordination or material violation of any duty of loyalty, or any other material misconduct on the part of the executive officer; (5) ongoing and repeated failure or refusal to perform or neglect of his duties as required by his employment agreement, which failure, refusal or neglect continues for 15 days following his receipt of written notice from our board of directors, or, in the case of Dr. Spada, from our chief executive officer, stating with specificity the nature of such failure, refusal or neglect; or (6) breach of any material provision of his employment agreement.
For purposes of the employment agreements, good reason generally means: (1) a material diminution in the executive officers authority, duties or responsibilities; (2) a material diminution in the executive officers base compensation, except in connection with a general reduction in the base compensation of our or any successors or affiliates personnel with similar status and responsibilities; (3) a material change in the geographic location at which the executive officer must perform his duties (and we and the executive officer agree that any requirement that the executive officer be based at any place outside a 50-mile radius of his place of employment as of the effective date of the employment agreement, except for reasonably required travel on our or any successors or affiliates business that is not materially greater than such travel requirements prior to the effective date of the employment agreement, shall be considered a material change); or (4) any other action or inaction that constitutes a material breach by us or any successor or affiliate of its obligations to the executive officer under the employment agreement.
For purposes of the employment agreements, change in control generally has the same meaning as such term is given under the terms of our 2006 Equity Incentive Plan, as described below.
Employment Agreement with Dr. Burgess
In November 2011, we entered into an employment agreement with Dr. Burgess, or the Burgess employment agreement.
Pursuant to the Burgess employment agreement, Dr. Burgess receives an annual base salary of $280,000, which amount is subject to annual review by and at the sole discretion of our board of directors or its designee. Dr. Burgess will also be eligible to earn an annual cash performance bonus equal to up to 30% of his then-current annual base salary. The annual cash performance bonus will be based on his and/or our attainment of objective financial or other
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operating criteria established by our board of directors or its designee, as determined by our board of directors or its designee. In addition to his base salary and annual bonus, for so long as we do not maintain any company-paid health or pension scheme in the United Kingdom, as more fully described in the employment agreement, and Dr. Burgess resides in the United Kingdom, we will pay Dr. Burgess a monthly stipend to purchase individually-obtained insurance and pension benefits.
Pursuant to the terms of the Burgess employment agreement, either we or Dr. Burgess may terminate Dr. Burgess employment with us at any time with no less than 30 days prior written notice, or such longer period of notice as is required by law, and we may terminate Dr. Burgess employment with us immediately upon notice if such termination is for cause, or if we pay Dr. Burgess, in lieu of notice, an amount equal to the base salary that he would otherwise have received during the notice period. In addition, if we terminate Dr. Burgess employment without cause (as defined below) or if he resigns for good reason (as defined below), Dr. Burgess is entitled to the following payments and benefits: (1) his fully earned but unpaid base salary through the date of termination at the rate then in effect, plus all other amounts under any compensation plan or practice to which he is entitled; (2) a lump sum cash payment in an amount equal to his monthly base salary as in effect immediately prior to the date of termination for the 12-month period following the date of termination; and (3) an amount equal to the monthly plan premium payments for Dr. Burgess health plans in equal monthly payments for a period of 12 months following the date of termination.
For purposes of the Burgess employment agreement, cause generally means Dr. Burgess: (1) commission of an act of fraud, embezzlement or dishonesty that has a material adverse impact on us or any successor or affiliate of ours; (2) conviction of, or entry into a plea of guilty or no contest to, a felony or any crime involving fraud, misappropriation, embezzlement or moral turpitude; (3) unauthorized use or disclosure of our confidential information or trade secrets or any successor or affiliate of ours that has a material adverse impact on any such entity; (4) gross negligence, gross misconduct (as defined below), insubordination or material violation of any duty of loyalty, or any other material misconduct on the part of Dr. Burgess; (5) ongoing and repeated failure or refusal to perform or neglect of his duties as required by his employment agreement, which failure, refusal or neglect continues for 15 days following his receipt of written notice from our board of directors or our chief executive officer, stating with specificity the nature of such failure, refusal or neglect; or (6) breach of any material provision of his employment agreement.
For purposes of the Burgess employment agreement, good reason generally means: (1) a material diminution in the executive officers authority, duties or responsibilities; (2) a material diminution in the executive officers base compensation, except in connection with a general reduction in the base compensation of our or any successors or affiliates personnel with similar status and responsibilities, provided that in the event of Dr. Burgess relocation to the United States, the expiration of benefits related to holidays, illness and expenses, as more fully described in the Burgess employment agreement, shall not constitute good reason; and (3) any other action or inaction that constitutes a material breach by us or any successor or affiliate of its obligations to Dr. Burgess under the employment agreement.
For purposes of the Burgess employment agreement, gross misconduct generally means: (1) an act which constitutes unlawful discrimination or harassment, whether on the grounds of sex, sexual orientation, race, ethnic origin, nationality, disability, age, religion or beliefs; (2) knowingly providing us false information or documentation; (3) being under the influence of, or consuming, illegal drugs or any controlled substances during work hours or while involved in our activities or events; (4) violent, abusive, intimidating or offensive behavior (whether physical or verbal); (5) unauthorized access to or inappropriate use of our computer, e-mail and internet systems or use of unapproved software; (6) interference with safety equipment; or (7) intentional or reckless disregard for health and safety rules or procedures.
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For purposes of the Burgess employment agreement, change in control generally has the same meaning as such term is given under the terms of our 2006 Equity Incentive Plan, as described below.
Employee Incentive Compensation Plan
All of our employees, including our named executive officers, are eligible to participate in our Employee Incentive Compensation Plan, or the EICP. The EICP is designed as a mechanism for rewarding corporate and individual achievement by offering both short-term and long-term incentive compensation to employees. The EICP is administered by the compensation committee of our board of directors, and our compensation committee is responsible for the approval of participation, award targets, performance measures and earned awards under the EICP.
Pursuant to the EICP, our compensation committee may make awards based on annual individual and corporate objectives determined for the performance measurement period. The relative weight between individual and corporate performance factors varies based on reporting levels and responsibility, and is currently as follows for our named executive officers, subject to annual review by our compensation committee:
Corporate | Individual | |||||||
President/CEO |
100 | % | 0 | % | ||||
Senior Vice President |
80 | % | 20 | % |
Annual Cash Incentive Awards
The EICP allows for annual cash incentive awards, which are determined by (1) applying a target award multiplier, as set forth below, to each covered employees base salary; (2) allocating such amount between the corporate and individual components, as set forth above; and (3) multiplying each such allocated amount by an award multiplier ranging from 0% to 150%, as determined by our compensation committee based on corporate and individual achievement for the applicable year.
The target award multipliers for our named executive officers are as follows:
Target Award Multiplier |
||||
CEO |
40 | % | ||
Senior Vice President |
30 | % |
Corporate objectives for the EICP for 2012 were established in December 2011, and generally related to clinical development, business development and operational goals. In December 2012, our board of directors determined, in consultation with our compensation committee, to approve annual cash incentive awards for 2012 for our employees, including our named executive officers, at 100% of targeted levels.
Our compensation committee determined to award cash incentive awards to Drs. Mento, Spada and Burgess in the amount of $162,902, $82,460 and $84,000, respectively. However, payment of these awards was made subject to the receipt of acceptable non-dilutive financing by the company as determined by our board of directors, and each executive officer must continue to be employed by us on the date of payment of such bonus in order to remain eligible to receive it.
Long Term Incentive Awards
In addition, pursuant to the EICP, our compensation committee may grant annual stock option awards to our employees, including our named executive officers, under our 2006 Equity Incentive Plan. Such options will generally vest over a four-year period. The target number of shares to be subject to such annual stock option awards for our named executive officers are set forth below:
Target Number of Shares of Annual Stock Option Awards |
||||
CEO |
300,000 | |||
Senior Vice President |
100,000 |
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The EICP provides for annual stock option awards to be determined by (1) allocating the target amount set forth above between the corporate and individual components for an individual, as set forth above; and (2) multiplying each such allocated amount by an award multiplier ranging from 0% to 150%, as determined by the compensation committee. Our compensation committee has broad discretion in the grant of such stock option awards, and the amount of such grants, based on the performance of the individual and the company at the time of grant. In December 2012, our compensation committee determined to award stock option awards to Drs. Mento, Spada and Burgess to purchase 400,000, 150,000 and 250,000 shares of our common stock, respectively, based on their superior performance during 2012. These award amounts represented 133%, 150% and 250% of their target annual award amounts under the EICP. The stock options were granted with an exercise price of $0.01 per share and vest over four years, as described below.
In the event of a change in control (as defined in the 2006 Equity Incentive Plan), and if the EICP is assumed by the acquiring company stock option awards for the year in which the change in control occurs will be the greater of the target award or the actual award determined by the compensation committee in its sole discretion. In addition, all unvested stock options previously granted under the EICP will be subject to 50% accelerated vesting immediately upon a change in control. The remaining unvested stock options will vest upon the earlier of (1) the date which is twelve months following the effective date of the change in control, or (2) the date immediately prior to the date on which an employee incurs either an involuntary termination without cause or a constructive termination, if and only if, the covered employee incurs the constructive termination or involuntary termination without cause at any time after the change in control, but prior to the date which is 12 months following the effective date of the change in control.
Equity Compensation
We offer stock options to our employees, including our named executive officers, as the long-term incentive component of our compensation program. We typically grant equity awards to new hires upon their commencing employment with us. Our stock options allow employees to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and may or may not be intended to qualify as incentive stock options for U.S. federal income tax purposes. In the past, our board of directors has determined the fair market value of our common stock based upon inputs including valuation reports prepared by third-party valuation firms from time to time. Generally, the stock options we grant vest as to 25% of the total number of option shares on the first anniversary of the date of grant and in equal monthly installments over the ensuing 36 months, subject to the employees continued employment with us on the vesting date. We also generally offer our employees the opportunity to early exercise their unvested stock options by purchasing shares underlying the unvested portion of an option subject to our right to repurchase any unvested shares for the lesser of the exercise price paid for the shares and the fair market value of the shares on the date of the holders termination of service if the employees service with us terminates prior to the date on which the options are fully vested.
Stock options granted to our named executive officers may be subject to accelerated vesting in certain circumstances. For additional discussion, please see Employment Agreements above and Other Elements of CompensationChange in Control Benefits below.
All of our named executive officers received stock option awards in 2012. For additional discussion, please see Employee Incentive Compensation PlanLong Term Incentive Awards above.
Prior to the effectiveness of this offering, we intend to adopt a 2013 Equity Incentive Award Plan, referred to below as the 2013 Plan, in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success. For additional information about the 2013 Plan, please see the section titled Equity Incentive Award Plans below.
Other Elements of Compensation
Retirement Plans
We currently maintain a 401(k) retirement savings plan that allows eligible employees to defer a portion of their compensation, within limits prescribed by the Internal Revenue Code, on a pre-tax basis through
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contributions to the plan. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees generally. Currently, we match contributions made by participants in the 401(k) plan up to a specified percentage, and these matching contributions are fully vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan, and making fully vested matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
Employee Benefits and Perquisites
Our named executive officers are eligible to participate in our health and welfare plans to the same extent as all full-time employees generally. We also provide Drs. Mento and Spada with term life insurance, disability insurance and long-term care insurance at our expense. Dr. Burgess also receives a monthly stipend to cover his health insurance and pension contributions in lieu of our maintaining plans in the United Kingdom. We do not provide our named executive officers with any other perquisites or other personal benefits.
No Tax Gross-Ups
We do not make gross-up payments to cover our named executive officers personal income taxes that may pertain to any of the compensation paid or provided by our company.
Change in Control Benefits
Our named executive officers may become entitled to certain benefits or enhanced benefits in connection with a change in control of our company. Drs. Mento and Spadas employment agreements entitle them to accelerated vesting of all outstanding equity awards immediately upon a change in control of our company. In addition, stock options granted to our employees, including our named executive officers, are subject to acceleration in connection with a change in control and certain terminations of employment, as described above under Employee Incentive Compensation Plan Long Term Incentive Awards.
Outstanding Equity Awards at 2012 Fiscal Year-End
The following table presents the outstanding equity incentive plan awards held by each named executive officer as of December 31, 2012.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name |
Grant Date |
Number
of Securities Underlying Unexercised Options Exercisable (#) |
Number
of Securities Underlying Unexercised Options Unexercisable (#) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(1) |
||||||||||||||||||||||||
Steven J. Mento, Ph.D. |
3/3/08 | 300,000 | (2) | | | 0.15 | 3/2/18 | | | |||||||||||||||||||||||
2/17/11 | 1,750,000 | (3) | | | 0.12 | 2/16/21 | | | ||||||||||||||||||||||||
12/9/11 | | | | | | 157,500 | (4) | |||||||||||||||||||||||||
12/7/12 | | | | | | 400,000 | (4) | |||||||||||||||||||||||||
Gary C. Burgess, M.B., Ch.B. M.Med. |
12/9/11 | | | | | | 546,875 | (5) | ||||||||||||||||||||||||
12/7/12 | | | | | | 250,000 | (4) | |||||||||||||||||||||||||
Alfred P. Spada, Ph.D. |
3/3/08 | 100,000 | (2) | | | 0.15 | 3/2/18 | | | |||||||||||||||||||||||
2/17/11 | 350,000 | (3) | | | 0.12 | 2/16/21 | | | ||||||||||||||||||||||||
12/9/11 | | | | | | 75,000 | (4) | |||||||||||||||||||||||||
12/7/12 | | | | | | 150,000 | (4) |
(1) | Since we have not yet completed our initial public offering, the market values shown were computed using $ per share, which is the midpoint of the price range set forth on the cover of this prospectus. |
(2) | The options were exercisable in full as of the grant date and vested at the rate of 25% of the total number of shares subject to the option on the one year anniversary of December 7, 2007, and 1/48th of the total number of shares subject to the option on the last day of each month thereafter. |
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(3) | The options were exercisable in full as of the grant date and vested at the rate of 1/24th of the total number of shares subject to the option on the last day of each one-month period of service following February 9, 2011. |
(4) | The restricted stock was issued upon early exercise of stock options granted to the executive officer on the grant date reflected in the table above, and shall vest and be released from our repurchase option at the rate of 25% of the total number of shares subject to the award on the one year anniversary of the grant date, and 1/48th of the total number of shares subject to the award on the last day of each month thereafter, provided that the executive officer continues to provide services to us through such dates. Unvested restricted stock is subject to a right of repurchase within 90 days of termination of employment. The stock options granted on December 9, 2011 and December 7, 2012, pursuant to which such restricted stock was issued, were granted at an exercise price of $0.01 per share. |
(5) | The restricted stock was issued upon early exercise of stock options granted to the executive officer on the grant date reflected in the table above, and shall vest and be released from our repurchase option at the rate of 25% of the total number of shares subject to the award on November 1, 2012, and 1/48th of the total number of shares subject to the award on the last day of each month thereafter, provided that the executive officer continues to provide services to us through such dates. Unvested restricted stock is subject to a right of repurchase within 90 days of termination of employment. The stock options granted on December 9, 2011, pursuant to which such restricted stock was issued, was granted at an exercise price of $0.01 per share. |
Director Compensation
2012 Director Compensation Table
The following table sets forth information for the year ended December 31, 2012 regarding the compensation awarded to, earned by or paid to our non-employee directors who served on our board of directors during 2012. Employees of our company who also serve as directors do not receive additional compensation for their performance of services as directors.
Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||||||||
William Gerber, M.D. |
| | | | | | ||||||||||||||||||
David F. Hale |
20,000 | | | | | 20,000 | ||||||||||||||||||
Paul H. Klingenstein |
| | | | | | ||||||||||||||||||
Louis Lacasse |
| | | | | | ||||||||||||||||||
Shahzad Malik, M.D. |
| | | | | | ||||||||||||||||||
Marc Perret |
| | | | | | ||||||||||||||||||
James Scopa |
| | | | | | ||||||||||||||||||
Harold Van Wart, Ph.D. |
20,000 | | | | | 20,000 |
(1) | Amounts shown represent the aggregate grant date fair value of the option awards computed in accordance with FASB Topic ASC 718. These amounts do not correspond to the actual value that will be recognized by the director with respect to such awards. For a detailed description of the assumptions used for purposes of determining grant date fair value, see Note 2 to the consolidated financial statements included elsewhere in this prospectus. |
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The table below shows the aggregate numbers of option awards held as of December 31, 2012 by each non-employee director who was serving as of December 31, 2012.
Name |
Options Outstanding at Fiscal Year End |
|||
William Gerber, M.D. |
| |||
David F. Hale |
100,000 | |||
Paul H. Klingenstein |
| |||
Louis Lacasse |
| |||
Shahzad Malik, M.D. |
| |||
Marc Perret |
| |||
James Scopa |
| |||
Harold Van Wart, Ph.D. |
250,000 |
Following the effectiveness of this offering, we intend to approve and implement a compensation program for our non-employee directors that will consist of annual retainer fees and long-term equity awards. We expect each non-employee director will receive an annual cash retainer for his or her services in an amount equal to $ and additional amounts that have not yet been determined for service on board committees. We further expect that non-employee directors will also receive initial grants of options to purchase shares of our common stock, vesting over years, upon election to the board of directors or, for our current directors, upon the effectiveness of this offering, and thereafter annual grants of options to purchase shares of our common stock on the date of each annual meeting of stockholders, vesting over years.
Equity Incentive Award Plans
2013 Equity Incentive Award Plan
Concurrently with this offering, we intend to establish the Conatus Pharmaceuticals, Inc. 2013 Equity Incentive Award Plan, or the 2013 Plan. We expect our board of directors to adopt, and our stockholders to approve, the 2013 Plan prior to the completion of this offering. The 2013 Plan will become effective on the business day prior to the public trading date of our common stock. The material terms of the 2013 Plan, as it is currently contemplated, are summarized below. Our board of directors is still in the process of developing, approving and implementing the 2013 Plan and, accordingly, this summary is subject to change.
Authorized Shares. A total of shares of our common stock will initially be reserved for issuance under the 2013 Plan. In addition, the number of shares initially reserved under the 2013 Plan will be increased by (1) the number of shares that as of the closing of this offering, have been reserved but not issued pursuant to any awards granted under our 2006 Equity Incentive Plan and are not subject to any awards granted thereunder, and (2) the number of shares subject to stock options or similar awards granted under the 2006 Equity Incentive Plan that expire or otherwise terminate without having been exercised in full and unvested shares issued pursuant to awards granted under the 2006 Equity Incentive Plan that are forfeited to or repurchased by us, with the maximum number of shares to be added to the 2013 Plan pursuant to clauses (1) and (2) above equal to shares. In addition, the number of shares available for issuance under the 2013 Plan will be annually increased on the first day of each of our fiscal years during the term of the 2013 Plan, beginning with the 2014 fiscal year, by an amount equal to the least of:
| shares; |
| % of the outstanding shares of our common stock as of the last day of our immediately preceding fiscal year; or |
| such other amount as our board of directors may determine. |
The 2013 Plan will also provide for an aggregate limit of shares of common stock that may be issued under the 2013 Plan over the course of its ten-year term.
Shares issued pursuant to awards under the 2013 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award, will
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become available for future grant under the 2013 Plan. In addition, to the extent that an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the 2013 Plan.
Plan Administration. The compensation committee of our board of directors will administer the 2013 Plan (except with respect to any award granted to independent directors (as defined in the 2013 Plan), which must be administered by our full board of directors). Following the completion of this offering, to administer the 2013 Plan, our compensation committee must consist solely of at least two members of our board of directors, each of whom is a non-employee director for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and, with respect to awards that are intended to constitute performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, an outside director for purposes of Section 162(m). Subject to the terms and conditions of the 2013 Plan, our compensation committee has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, the number of awards to grant, the number of shares to be subject to such awards, and the terms and conditions of such awards, and to make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2013 Plan. Our compensation committee is also authorized to establish, adopt, amend or revise rules relating to administration of the 2013 Plan. Our board of directors may at any time revest in itself the authority to administer the 2013 Plan.
Eligibility. Options, stock appreciation rights, or SARs, restricted stock and other awards under the 2013 Plan may be granted to individuals who are then our officers or employees or are the officers or employees of any of our subsidiaries or parent entities. Such awards may also be granted to our non-employee directors and consultants but only employees may be granted incentive stock options, or ISOs. As of December 31, 2012, there were eight non-employee directors and approximately 14 employees who would have been eligible for awards under the 2013 Plan had it been in effect on such date. At such time after the completion of this offering when we are subject to the requirements of Section 162(m) of the Code, the maximum number of shares that may be subject to awards granted under the 2013 Plan to any individual (other than non-employee directors) in any calendar year cannot exceed and the maximum amount that may be paid to a participant in cash during any calendar year with respect to one or more cash based awards under the 2013 Plan is $ . In addition, the maximum number of shares that may be subject to awards granted under the 2013 Plan to any non-empolyee director in any calendar year cannot exceed .
Awards. The 2013 Plan provides that our compensation committee (or the board of directors, in the case of awards to non-employee directors) may grant or issue stock options, SARs, restricted stock, restricted stock units, dividend equivalents, stock payments and performance awards, or any combination thereof. Our compensation committee (or the board of directors, in the case of awards to non-employee directors) will consider each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
| Nonqualified stock options, or NQSOs, will provide for the right to purchase shares of our common stock at a specified price which may not be less than the fair market value of a share of common stock on the date of grant, and usually will become exercisable (at the discretion of our compensation committee or our board of directors, in the case of awards to non-employee directors) in one or more installments after the grant date, subject to the participants continued employment or service with us and/or subject to the satisfaction of performance targets established by our compensation committee (or our board of directors, in the case of awards to non-employee directors). NQSOs may be granted for any term specified by our compensation committee (or our board of directors, in the case of awards to non-employee directors). |
| ISOs will be designed to comply with the provisions of the Code and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, must expire within a specified period of time following the optionees termination of employment, and must be exercised within ten years after the date of grant. In the case of an ISO granted to an individual who owns |
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(or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock, the 2013 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must expire upon the fifth anniversary of the date of grant. |
| Restricted stock may be granted to participants and made subject to such restrictions as may be determined by our compensation committee (or our board of directors, in the case of awards to non-employee directors). Typically, restricted stock may be forfeited for no consideration if the conditions or restrictions are not met, and it may not be sold or otherwise transferred to third parties until the restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to the time when the restrictions lapse. |
| Restricted stock units may be awarded to participants, typically without payment of consideration or for a nominal purchase price, but subject to vesting conditions including continued employment or performance criteria established by our compensation committee (or our board of directors, in the case of awards to non-employee directors). Like restricted stock, restricted stock units may not be sold or otherwise transferred or hypothecated until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied. |
| SARs granted under the 2013 Plan typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the SAR. Except as required by Section 162(m) of the Code with respect to SARs intended to qualify as performance-based compensation as described in Section 162(m) of the Code, there are no restrictions specified in the 2013 Plan on the exercise of SARs or the amount of gain realizable therefrom. Our compensation committee (or the board of directors, in the case of awards to non-employee directors) may elect to pay SARs in cash or in common stock or in a combination of both. |
| Dividend equivalents represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant. |
| Performance awards may be granted by our compensation committee on an individual or group basis. Generally, these awards will be based upon the attainment of specific performance goals that are established by our compensation committee and relate to one or more performance criteria on a specified date or dates determined by our compensation committee. Any such cash bonus paid to a covered employee within the meaning of Section 162(m) of the Code may be, but need not be, qualified performance-based compensation as described below and will be paid in cash. |
| Stock payments may be authorized by our compensation committee (or our board of directors, in the case of awards to non-employee directors) in the form of common stock or an option or other right to purchase common stock as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any part of compensation, that would otherwise be payable to employees, consultants or members of our board of directors. |
Transferability of Awards. Unless the administrator provides otherwise, our 2013 Plan generally does not allow for the transfer of awards and only the recipient of an option or SAR may exercise such an award during his or her lifetime.
Qualified Performance-Based Compensation. The compensation committee may designate employees as covered employees whose compensation for a given fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. The compensation committee may grant to such covered employees restricted stock, dividend equivalents, stock payments, restricted stock units, cash bonuses and other stock-based awards that are paid, vest or become exercisable upon the attainment of company performance criteria which are related to one or more of the following performance criteria as applicable to our performance or the performance of a division, business unit or an individual: operating or other costs and expenses, improvements in expense levels, cash flow (including, but not limited to, operating cash flow and free cash flow), return on assets, return on capital, stockholders equity, return on stockholders equity, total stockholder return, return on sales, gross or net profit or operating margin, working capital, net earnings (either before or after
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interest, taxes, depreciation and amortization), gross or net sales or revenue, net income (either before or after taxes), adjusted net income, operating earnings, earnings per share of stock, adjusted earnings per share of stock, price per share of stock, regulatory body approval for commercialization of a product, capital raised in financing transactions or other financing milestones, market recognition (including but not limited to awards and analyst ratings), financial ratios, implementation or completion of critical projects, market share, economic value, comparisons with various stock market indices, and implementation, completion or attainment of objectively determinable objectives relating to research, development, regulatory, commercial or strategic milestones or development. These performance criteria may be measured in absolute terms or as compared to performance in an earlier period or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.
The compensation committee may provide that one or more objectively determinable adjustments will be made to one or more of the performance goals established for any performance period. Such adjustments may include one or more of the following: items related to a change in accounting principle, items relating to financing activities, expenses for restructuring or productivity initiatives, other non-operating items, items related to acquisitions, items attributable to the business operations of any entity acquired by us during the performance period, items related to the disposal of a business or segment of a business, items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards, items attributable to any stock dividend, stock split, combination or exchange of shares occurring during the performance period, any other items of significant income or expense which are determined to be appropriate adjustments, items relating to unusual or extraordinary corporate transactions, events or developments, items related to amortization of acquired intangible assets, items that are outside the scope of our core, on-going business activities, items related to acquired in-process research and development, items relating to changes in tax laws, items relating to major licensing or partnership arrangements, items relating to asset impairment charges, items relating to gains and losses for litigation, arbitration or contractual settlements, or items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.
Forfeiture, Recoupment and Clawback Provisions. Pursuant to its general authority to determine the terms and conditions applicable to awards under the 2013 Plan, the compensation committee has the right to provide, in an award agreement or otherwise, that an award shall be subject to the provisions of any recoupment or clawback policies implemented by us, including, without limitation, any recoupment or clawback policies adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.
Adjustments. If there is any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of our assets to stockholders, or any other change affecting the shares of our common stock or the share price of our common stock other than an equity restructuring (as defined in the 2013 Plan), the plan administrator may make such equitable adjustments, if any, as the plan administrator in its discretion may deem appropriate to reflect such change with respect to (1) the aggregate number and type of shares that may be issued under the 2013 Plan (including, but not limited to, adjustments of the number of shares available under the 2013 Plan and the maximum number of shares which may be subject to one or more awards to a participant pursuant to the 2013 Plan during any calendar year), (2) the number and kind of shares, or other securities or property, subject to outstanding awards, (3) the number and kind of shares, or other securities or property, for which automatic grants are to be subsequently made to new and continuing non-employee directors, (4) the terms and conditions of any outstanding awards (including, without limitation, any applicable performance targets or criteria with respect thereto), and (5) the grant or exercise price per share for any outstanding awards under the 2013 Plan. If there is any equity restructuring, (1) the number and type of securities subject to each outstanding award and the grant or exercise price per share for each outstanding award, if applicable, will be proportionately adjusted, and (2) the plan administrator will make proportionate adjustments to reflect such equity restructuring with respect to the aggregate number and type of shares that may be issued under the 2013 Plan (including, but not limited to, adjustments of the number of shares available under the 2013 Plan and the maximum number of shares which may be subject to one or more awards to a participant pursuant to the 2013 Plan during any
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calendar year). Adjustments in the event of an equity restructuring will not be discretionary. Any adjustment affecting an award intended as qualified performance-based compensation will be made consistent with the requirements of Section 162(m) of the Code. The plan administrator also has the authority under the 2013 Plan to take certain other actions with respect to outstanding awards in the event of a corporate transaction, including provision for the cash-out, termination, assumption or substitution of such awards.
Corporate Transactions. In the event of a change in control where the acquirer does not assume awards granted under the 2013 Plan, awards issued under the 2013 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable. Under the 2013 Plan, a change in control is generally defined as:
| a transaction or series of related transactions (other than an offering of our stock to the general public through a registration statement filed with the Securities and Exchange Commission, or SEC) whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the total combined voting power of our securities outstanding immediately after such acquisition; |
| during any two-year period, individuals who, at the beginning of such period, constitute our board of directors together with any new director(s) whose election by our board of directors or nomination for election by our 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 two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of our board of directors; |
| our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) the sale or other disposition of all or substantially all of our assets in any single transaction or series of transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction: |
| which results in our voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into our voting securities or the voting securities of the person that, as a result of the transaction, controls us, directly or indirectly, or owns, directly or indirectly, all or substantially all of our assets or otherwise succeeds to our business (we or such person being referred to as a successor entity)) directly or indirectly, at least 50% of the combined voting power of the successor entitys outstanding voting securities immediately after the transaction; and |
| after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group is treated as beneficially owning 50% or more of combined voting power of the successor entity solely as a result of the voting power held in us prior to the consummation of the transaction; or |
| our stockholders approve a liquidation or dissolution of the company. |
Amendment, Termination. Our board of directors has the authority to amend, suspend or terminate the 2013 Plan at any time. However, stockholder approval of any amendment to the 2013 Plan will be obtained to the extent necessary to comply with any applicable law, regulation or stock exchange rule. Additionally, stockholder approval is required within 12 months of an increase in the maximum number of shares issuable under the 2013 Plan or that may be issued to an individual in any calendar year. Except as necessary to comply with Section 409A of the Code, no amendment, suspension or termination of the 2013 Plan will impair the rights or obligations of a holder under an award theretofore granted, unless such award expressly so provides or such holder consents. If not terminated earlier by our board of directors, the 2013 Plan will terminate on the tenth anniversary of the date of its initial approval by our board of directors.
Repricing Permitted. Our compensation committee (or the board of directors, in the case of awards to non-employee directors) shall have the authority, without the approval of our stockholders, to authorize the amendment of any outstanding award to reduce its price per share and to provide that an award will be canceled and replaced with the grant of an award having a lesser price per share.
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Securities Laws and Federal Income Taxes. The 2013 Plan is designed to comply with various securities and federal tax laws as follows:
Securities Laws. The 2013 Plan is intended to conform to all provisions of the Securities Act of 1933, as amended, and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2013 Plan will be administered, and awards will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.
Federal Income Tax Consequences. The material federal income tax consequences of the 2013 Plan under current federal income tax law are summarized in the following discussion, which deals with the general tax principles applicable to the 2013 Plan. The following discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed due to the fact that they may vary depending on individual circumstances and from locality to locality.
| Stock Options and Stock Appreciation Rights. A 2013 Plan participant generally will not recognize taxable income and we generally will not be entitled to a tax deduction upon the grant of a stock option or stock appreciation right. The tax consequences of exercising a stock option and the subsequent disposition of the shares received upon exercise will depend upon whether the option qualifies as an ISO as defined in Section 422 of the Code. The 2013 Plan permits the grant of options that are intended to qualify as ISOs as well as options that are not intended to so qualify; however, ISOs generally may be granted only to our employees and employees of our parent or subsidiary corporations, if any. Upon exercising an option that does not qualify as an ISO when the fair market value of our stock is higher than the exercise price of the option, a 2013 Plan participant generally will recognize taxable income at ordinary income tax rates equal to the excess of the fair market value of the stock on the date of exercise over the purchase price, and we (or our subsidiaries, if any) generally will be entitled to a corresponding tax deduction for compensation expense, in the amount equal to the amount by which the fair market value of the shares purchased exceeds the purchase price for the shares. Upon a subsequent sale or other disposition of the option shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participants tax basis in the shares. |
Upon exercising an ISO, a 2013 Plan participant generally will not recognize taxable income, and we will not be entitled to a tax deduction for compensation expense. However, upon exercise, the amount by which the fair market value of the shares purchased exceeds the purchase price will be an item of adjustment for alternative minimum tax purposes. The participant will recognize taxable income upon a sale or other taxable disposition of the option shares. For federal income tax purposes, dispositions are divided into two categories: qualifying and disqualifying. A qualifying disposition generally occurs if the sale or other disposition is made more than two years after the date the option was granted and more than one year after the date the shares are transferred upon exercise. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition generally will result.
Upon a qualifying disposition of ISO shares, the participant will recognize long-term capital gain in an amount equal to the excess of the amount realized upon the sale or other disposition of the shares over their purchase price. If there is a disqualifying disposition of the shares, then the excess of the fair market value of the shares on the exercise date (or, if less, the price at which the shares are sold) over their purchase price will be taxable as ordinary income to the participant. If there is a disqualifying disposition in the same year of exercise, it eliminates the item of adjustment for alternative minimum tax purposes. Any additional gain or loss recognized upon the disposition will be recognized as a capital gain or loss by the participant.
We will not be entitled to any tax deduction if the participant makes a qualifying disposition of ISO shares. If the participant makes a disqualifying disposition of the shares, we should be entitled to a tax deduction for compensation expense in the amount of the ordinary income recognized by the participant.
Upon exercising or settling a SAR, a 2013 Plan participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in
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the amount paid or value of the shares issued upon exercise or settlement. Payments in shares will be valued at the fair market value of the shares at the time of the payment, and upon the subsequent disposition of the shares the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participants tax basis in the shares.
| Restricted Stock and Restricted Stock Units. A 2013 Plan participant generally will not recognize taxable income at ordinary income tax rates and we generally will not be entitled to a tax deduction upon the grant of restricted stock or restricted stock units. Upon the termination of restrictions on restricted stock or the payment of restricted stock units, the participant will recognize taxable income at ordinary income tax rates, and we should be entitled to a corresponding tax deduction for compensation expense, in the amount paid to the participant or the amount by which the then fair market value of the shares received by the participant exceeds the amount, if any, paid for them. Upon the subsequent disposition of any shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participants tax basis in the shares. However, a 2013 Plan participant granted restricted stock that is subject to forfeiture or repurchase through a vesting schedule such that it is subject to a risk of forfeiture (as defined in Section 83 of the Code) may make an election under Section 83(b) of the Code to recognize taxable income at ordinary income tax rates, at the time of the grant, in an amount equal to the fair market value of the shares of common stock on the date of grant, less the amount paid, if any, for such shares. We will be entitled to a corresponding tax deduction for compensation, in the amount recognized as taxable income by the participant. If a timely Section 83(b) election is made, the participant will not recognize any additional ordinary income on the termination of restrictions on restricted stock, and we will not be entitled to any additional tax deduction. |
| Dividend Equivalents, Stock Payment Awards and Cash-Based Awards. A 2013 Plan participant will not recognize taxable income and we will not be entitled to a tax deduction upon the grant of dividend equivalents, stock payment awards or cash-based awards until cash or shares are paid or distributed to the participant. At that time, any cash payments or the fair market value of shares that the participant receives will be taxable to the participant at ordinary income tax rates and we should be entitled to a corresponding tax deduction for compensation expense. Payments in shares will be valued at the fair market value of the shares at the time of the payment, and upon the subsequent disposition of the shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participants tax basis in the shares. |
| Section 409A of the Code. Certain types of awards under the 2013 Plan may constitute, or provide for, a deferral of compensation under Section 409A. Unless certain requirements set forth in Section 409A are complied with, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% federal income tax (and, potentially, certain interest penalties). To the extent applicable, the 2013 Plan and awards granted under the 2013 Plan will be structured and interpreted to comply with Section 409A and the Department of Treasury regulations and other interpretive guidance that may be issued pursuant to Section 409A. |
| Section 162(m) Limitation. In general, under Section 162(m) of the Code, income tax deductions of publicly held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises and non-qualified benefits paid) for certain executive officers exceeds $1 million (less the amount of any excess parachute payments as defined in Section 280G of the Code) in any one year. However, under Section 162(m), the deduction limit does not apply to certain performance-based compensation if an independent compensation committee determines performance goals and if the material terms of the performance-based compensation are disclosed to and approved by our stockholders. In particular, stock options and SARs will satisfy the performance-based compensation exception if the awards are made by a qualifying compensation committee, the plan sets the maximum number of shares that can be granted to any person within a specified period and the compensation is based solely on an increase in the stock price after the grant date. Specifically, the option exercise price must be equal to or greater than the fair market value of the stock subject to the award on the grant date. Under a Section 162(m) transition rule for compensation plans of corporations which are privately held and which become publicly held in an initial public offering, certain awards under the 2013 Plan will not be subject to Section 162(m) until a |
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specified transition date, which is the earlier of (1) the material modification of the 2013 Plan, (2) the issuance of all employer stock and other compensation that has been allocated under the 2013 Plan, or (3) the first annual meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs. After the transition date, rights or awards granted under the 2013 Plan, other than options and SARs, will not qualify as performance-based compensation for purposes of Section 162(m) unless such rights or awards are granted or vest upon pre-established objective performance goals, the material terms of which are disclosed to and approved by our stockholders. |
We have attempted to structure the 2013 Plan in such a manner that, after the transition date, the compensation attributable to stock options and SARs which meet the other requirements of Section 162(m) will not be subject to the $1 million limitation. We have not, however, requested a ruling from the Internal Revenue Service or an opinion of counsel regarding this issue.
2006 Equity Incentive Plan
On March 27, 2006, our board of directors and our stockholders approved the Conatus Pharmaceuticals, Inc. 2006 Equity Incentive Plan, or the 2006 Plan.
As of December 31, 2012, a total of 8,250,000 shares of our common stock are reserved for issuance under the 2006 Plan. As of December 31, 2012, 5,694,500 shares of our common stock were subject to outstanding option awards and 97,000 shares of our common stock remained available for future issuance. After the effective date of the 2013 Plan, no additional awards will be granted under the 2006 Plan.
Administration. The compensation committee of our board of directors administers the 2006 Plan, except with respect to any award granted to non-employee directors (as defined in the 2006 Plan), which must be administered by our full board of directors. Subject to the terms and conditions of the 2006 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, determine the number of awards to grant, determine the number of shares to be subject to such awards, and the terms and conditions of such awards, and make all other determinations and decisions and to take all other actions necessary or advisable for the administration of the 2006 Plan. The plan administrator is also authorized to establish, adopt, amend or revise rules relating to administration of the 2006 Plan, subject to certain restrictions.
Eligibility. Options, SARs, restricted stock and other awards under the 2006 Plan may be granted to individuals who are then our employees, consultants and members of our board of directors or are employees, consultants or directors of our subsidiaries or parent entities. Only employees may be granted ISOs.
Awards. The 2006 Plan provides that our administrator may grant or issue stock options, restricted stock, restricted stock units, SARs, dividend equivalents, stock payments, or any combination thereof. The administrator considers each award grant subjectively, considering factors such as the individual performance of the recipient and the anticipated contribution of the recipient to the attainment of our long-term goals. Each award is set forth in a separate agreement with the person receiving the award and indicates the type, terms and conditions of the award.
| NQSOs provide for the right to purchase shares of our common stock at a specified price which may not be less than the fair market value of a share of stock on the date of grant, and usually will become exercisable (at the discretion of our compensation committee or the board of directors, in the case of awards to non-employee directors) in one or more installments after the grant date, subject to the participants continued employment or service with us and/or subject to the satisfaction of performance targets established by our compensation committee (or the board of directors, in the case of awards to non-employee directors). NQSOs may be granted for any term specified by our compensation committee (or the board of directors, in the case of awards to non-employee directors), but the term may not exceed ten years. |
| ISOs are designed to comply with the provisions of the Internal Revenue Code and are subject to specified restrictions contained in the Internal Revenue Code applicable to ISOs. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, |
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may only be granted to employees, must expire within a specified period of time following the optionees termination of employment, and must be exercised within the ten years after the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock on the date of grant, the 2006 Plan provides that the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the ISO must expire on the fifth anniversary of the date of its grant. |
| Restricted stock may be granted to participants and made subject to such restrictions as may be determined by the administrator. Typically, restricted stock may be repurchased by us at the original purchase price or, if no cash consideration was paid for such stock, forfeited for no consideration if the conditions or restrictions are not met, and the restricted stock may not be sold or otherwise transferred to third parties until restrictions are removed or expire. Recipients of restricted stock, unlike recipients of options, may have voting rights and may receive dividends, if any, prior to when the restrictions lapse. |
| Restricted stock units may be awarded to participants, typically without payment of consideration or for a nominal purchase price, but subject to vesting conditions including continued employment or performance criteria established by the administrator. Like restricted stock, restricted stock units may not be sold or otherwise transferred or hypothecated until vesting conditions are removed or expire. Unlike restricted stock, stock underlying restricted stock units will not be issued until some time after the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied and the shares have been issued. |
| SARs typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the SAR. There are no restrictions specified in the 2006 Plan on the exercise of SARs or the amount of gain realizable therefrom. Subject to certain terms and conditions of the 2006 Plan, the administrator may elect to pay SARs in cash or in common stock or in a combination of both. |
| Dividend equivalents may be awarded to participants and represent the value of the dividends, if any, per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant. |
| Stock payments may be authorized by the administrator in the form of common stock or an option or other right to purchase common stock as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any part of compensation, that would otherwise be payable to employees, consultants or members of our board of directors. |
Corporate Transactions. In the event of a change of control where the acquiror does not assume awards granted under the 2006 Plan, awards issued under the 2006 Plan will be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable, immediately prior to the change in control. Under the 2006 Plan, a change of control is generally defined as:
| a transaction or series of related transactions whereby any person or entity or related group of persons or entities (other than us, our subsidiaries, an employee benefit plan maintained by us or any of our subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the total combined voting power of our securities outstanding immediately after such acquisition; |
| during any two-year period, individuals who, at the beginning of such period, constitute our board of directors together with any new director(s) whose election by our board of directors or nomination for election by our 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 two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of our board of directors; |
| our consummation (whether we are directly or indirectly involved through one or more intermediaries) of (1) a merger, consolidation, reorganization, or business combination, (2) the sale or other disposition of all or substantially all of our assets or (3) the acquisition of assets or stock of another entity, in each case other than a transaction that results in our voting securities outstanding immediately before the transaction continuing to represent, directly or indirectly, at least 50% of the combined voting power of the successor entitys outstanding voting securities immediately after the transaction, and after which no person or entity |
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beneficially owns voting securities representing 50% or more of the combined voting power of the acquiring company that is not attributable to voting power held in the company prior to such transaction; or |
| the approval by our stockholders of a liquidation or dissolution of our company. |
Amendment and Termination of the 2006 Plan. Our board of directors may terminate, amend or modify the 2006 Plan. However, stockholder approval of any amendment to the 2006 Plan must be obtained to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, or for any amendment to the 2006 Plan that increases the number of shares available under the 2006 Plan. The administrator may, with the consent of the affected option holders, cancel any or all outstanding options under the 2006 Plan and grant new options in substitution. If not terminated earlier by the compensation committee or the board of directors, the 2006 Plan will terminate on March 26, 2016.
Securities Laws and Federal Income Taxes. The 2006 Plan is designed to comply with applicable securities laws in the same manner as described above in the description of the 2013 Plan under the heading 2013 Equity Incentive Award PlanSecurities Laws and Federal Income TaxesSecurities Laws. The general federal tax consequences of awards under the 2006 Plan are the same as those described above in the description of the 2013 Plan under the heading 2013 Equity Incentive Award PlanSecurities Laws and Federal Income TaxesFederal Income Taxes.
2013 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish the Conatus Pharmaceuticals, Inc. 2013 Employee Stock Purchase Plan, or the ESPP. We expect our board of directors to adopt, and our stockholders to approve, the ESPP prior to the completion of this offering. The ESPP will become effective on the business day prior to the public trading date of our common stock. Our executive officers and all of our other employees will be allowed to participate in our ESPP, subject to the eligibility requirements described below. The material terms of the ESPP, as it is currently contemplated, are summarized below. Our board of directors is still in the process of developing, approving and implementing the ESPP and, accordingly, this summary is subject to change.
A total of shares of our common stock will initially be reserved for issuance under our ESPP. In addition, the number of shares available for issuance under the ESPP will be annually increased on the first day of each fiscal year during the term of the ESPP, beginning with the 2014 fiscal year, by an amount equal to the least of:
| shares; |
| % of the outstanding shares of our common stock as of the last day of our immediately preceding fiscal year; or |
| such other amount as may be determined by our board of directors. |
The ESPP will also provide for an aggregate limit of shares of common stock that may be issued under the ESPP during the term of the ESPP.
Our board of directors or its committee has full and exclusive authority to interpret the terms of the ESPP and determine eligibility. We expect that our compensation committee will be the initial administrator of the ESPP.
Our employees are eligible to participate in the ESPP 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. However, an employee may not be granted rights to purchase stock under our ESPP if such employee, immediately after the grant, would own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of our common or other class of stock.
Our ESPP is intended to qualify under Code Section 423 and stock will be offered under the ESPP during offering periods. The length of the offering periods under the ESPP will be determined by our compensation committee and may be up to 27 months long. Employee payroll deductions will be used to purchase shares on each purchase date during an offering period. The purchase dates will be determined by the compensation committee for each offering period, but will generally be the last day in each offering period. Offering periods under the ESPP will commence when determined by our compensation committee. The compensation committee may, in its discretion, modify the terms of future offering periods.
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Our ESPP permits participants to purchase common stock through payroll deductions of up to % of their eligible compensation, which includes a participants gross base compensation for services to the company, excluding overtime payments, sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and other special payments. A participant may purchase a maximum of shares of common stock during each offering period. In addition, no employee will be permitted to accrue the right to purchase stock under the ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of our common stock as of the first day of the offering period).
On the first trading day of each offering period, each participant automatically is granted an option to purchase shares of our common stock. The option expires at the end of the offering period or upon termination of employment, whichever is earlier, but is exercised at the end of each purchase period to the extent of the payroll deductions accumulated during such purchase period. The purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the applicable purchase date. Participants may end their participation at any time during an offering period, and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment with us.
A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP.
In the event of certain significant transactions or a change in control (as defined in the ESPP), the compensation committee may provide for: (1) either the replacement or termination of outstanding rights in exchange for cash; (2) the assumption or substitution of outstanding rights by the successor or survivor corporation or parent or subsidiary thereof, if any; (3) the adjustment in the number and type of shares of stock subject to outstanding rights; (4) the use of participants accumulated payroll deductions to purchase stock on a new purchase date prior to the next purchase date and termination of any rights under ongoing offering periods; or (5) the termination of all outstanding rights. Under the ESPP, a change in control has the same definition as given to such term in the 2013 Plan.
The compensation committee may amend, suspend or terminate the ESPP. However, stockholder approval of any amendment to the ESPP will be obtained for any amendment which changes the aggregate number or type of shares that may be sold pursuant to rights under the ESPP, changes the corporations or classes of corporations whose employees are eligible to participate in the ESPP or changes the ESPP in any manner that would cause the ESPP to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code. The ESPP will terminate no later than the tenth anniversary of the ESPPs initial adoption by our board of directors.
Securities Laws. The ESPP has been designed to comply with various securities laws in the same manner as described above in the description of the 2013 Plan.
Federal Income Taxes. The material federal income tax consequences of the ESPP under current federal income tax law are summarized in the following discussion, which deals with the general tax principles applicable to the ESPP. The following discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed due to the fact that they may vary depending on individual circumstances and from locality to locality.
The ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Section 423 of the Code. Under the applicable Code provisions, no income will be taxable to a participant until the sale or other disposition of the shares purchased under the ESPP. This means that an eligible employee will not recognize taxable income on the date the employee is granted an option under the ESPP (i.e., the first day of the offering period). In addition, the employee will not recognize taxable income upon the purchase of shares. Upon such sale or disposition, the participant will generally be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the first day of the offering period during which the
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shares were purchased and more than one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of: (1) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price; or (2) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for the difference between the sale price and the purchase price.
If the shares are sold or otherwise disposed of before the expiration of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price and we will be entitled to a tax deduction for compensation expense in the amount of ordinary income recognized by the employee. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares were held following the date they were purchased by the participant prior to disposing of them. If the shares are sold or otherwise disposed of before the expiration of the holding periods described above but are sold for a price that is less than the purchase price, the participant will recognize ordinary income equal to the excess of the fair market value of the shares on the date of purchase over the purchase price (and we will be entitled to a corresponding deduction), but the participant generally will be able to report a capital loss equal to the difference between the sales price of the shares and the fair market value of the shares on the date of purchase.
Limitations of Liability and Indemnification Matters
Our amended and restated certificate of incorporation and our amended and restated bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, which prohibits our amended and restated certificate of incorporation from limiting the liability of our directors for the following:
| any breach of the directors duty of loyalty to us or our stockholders; |
| acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
| unlawful payment of dividends or unlawful stock repurchases or redemptions; or |
| any transaction from which the director derived an improper personal benefit. |
Our amended and restated certificate of incorporation and our amended and restated bylaws also provide that if Delaware law is amended to authorize corporate action further eliminating or limiting the personal liability of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law, as so amended. This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation and our amended and restated bylaws also provide that we shall have the power to indemnify our employees and agents to the fullest extent permitted by law. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity, regardless of whether our amended and restated bylaws would permit indemnification. We have obtained directors and officers liability insurance.
We have entered into separate indemnification agreements with our directors and executive officers, in addition to indemnification provided for in our amended and restated certificate of incorporation and amended and restated bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses, judgments, fines and settlement amounts incurred by this person in any action or proceeding arising out of this persons services as a director or executive officer or at our request. We believe that these provisions in our amended and restated certificate of incorporation and amended and restated bylaws and indemnification agreements are necessary to attract and retain qualified persons as directors and executive officers.
The above description of the indemnification provisions of our amended and restated certificate of incorporation, our amended and restated bylaws and our indemnification agreements is not complete and is
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qualified in its entirety by reference to these documents, each of which is incorporated by reference as an exhibit to this registration statement to which this prospectus forms a part.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A 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 under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 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 PERSON TRANSACTIONS
The following includes a summary of transactions since January 1, 2010 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under Executive and Director Compensation. We also describe below certain other transactions with our directors, executive officers and stockholders.
Preferred Stock Financings and Convertible Notes and Warrant Financing
Series A Convertible Preferred Stock Financing. From October 2006 through December 2006 and in May 2007, we issued and sold to investors in private placements an aggregate of 42,494,218 shares of our Series A convertible preferred stock at a purchase price of $0.75 per share, for aggregate consideration of approximately $31.9 million.
Series B Convertible Preferred Stock Financing. In February and March 2011, we issued and sold to investors in private placements an aggregate of 36,417,224 shares of our Series B convertible preferred stock at a purchase price of $0.90 per share, for aggregate consideration of approximately $32.8 million.
Convertible Note and Warrant Financing. In March 2010, we entered into a note and warrant purchase agreement with certain existing investors pursuant to which we sold, in private placements in March 2010 and October 2010, an aggregate of $5.0 million of convertible promissory notes, or the 2010 notes, and issued warrants exercisable to purchase shares of our Series A convertible preferred stock, or the 2010 Warrants. The 2010 notes accrued interest at a rate of 8% per annum and were due and payable on the earlier of (1) any date after July 31, 2011 upon which holders of 66 2/3% of the outstanding principal amount and accrued interest on all such 2010 notes demanded repayment, or (2) the occurrence of a change of control of the company, subject in each case to their earlier conversion in the event we completed a qualified equity financing. In connection with the Series B financing, the principal amount of the 2010 notes and accrued interest thereon was automatically converted into an aggregate of 5,861,667 shares of our Series B convertible preferred stock in February 2011. The 2010 Warrants are exercisable for an aggregate of 2,333,320 shares of Series A convertible preferred stock at an exercise price of $0.01 per share. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of shares of common stock, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate.
The following table sets forth the aggregate number of these securities acquired by the listed directors, executive officers or holders of more than 5% of our capital stock, or their affiliates. Each share of, or warrants exercisable for shares of, convertible preferred stock identified in the following table will convert into one share of, or warrants exercisable for, common stock upon completion of this offering.
Participants |
Series A Convertible Preferred Stock |
Series B Convertible Preferred Stock |
Series A Warrants |
Principal Amount of Notes |
||||||||||||
5% or Greater Stockholders(1) |
||||||||||||||||
Entities affiliated with Aberdare Ventures(2) |
10,729,941 | 5,983,862 | 619,766 | $ | 1,328,075 | |||||||||||
Entities affiliated with Advent Private Equity(3) |
10,000,000 | 5,576,786 | 577,599 | $ | 1,237,728 | |||||||||||
Entities affiliated with Bay City Capital(4) |
10,000,000 | 5,576,789 | 577,604 | $ | 1,237,728 | |||||||||||
Coöperative Gilde Healthcare II U.A. |
6,666,668 | 3,717,861 | 385,070 | $ | 825,152 | |||||||||||
Entities affiliated with MPM Capital(5) |
| 8,333,334 | | | ||||||||||||
AgeChem Venture Fund L.P. |
| 5,555,556 | | | ||||||||||||
Roche(6) |
2,999,999 | 1,673,036 | 173,281 | $ | 371,318 | |||||||||||
Executive Officers and Directors(1) |
||||||||||||||||
Steven J. Mento, Ph.D.(7) |
786,417 | | | | ||||||||||||
Charles J. Cashion(8) |
355,352 | | | | ||||||||||||
Alfred P. Spada, Ph.D. (9) |
363,927 | | | | ||||||||||||
David F. Hale(10) |
162,356 | | | |
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(1) | Additional details regarding these stockholders and their equity holdings are provided in Principal Stockholders. |
(2) | Represents securities acquired by Aberdare Ventures III, L.P. and Aberdare Partners III, L.P. |
(3) | Represents securities acquired by Advent Private Equity Fund III A, Advent Private Equity Fund III B, Advent Private Equity Fund III C, Advent Private Equity Fund III D, Advent Private Equity Fund III GmbH & Co KG, Advent Private Equity Fund III Affiliates, Advent Management III Limited Partnership, Advent Private Equity Fund IV and Advent Management IV Limited Partnership. |
(4) | Represents securities acquired by Bay City Capital Fund IV Co-Investment Fund, L.P. and Bay City Capital Fund IV, L.P. |
(5) | Represents securities acquired by MPM BioVentures IV-QP, L.P., MPM BioVentures IV GmbH & Co. Beteiligungs KG, MPM Asset Management Investors BV4 LLC, MPM BioVentures V, L.P. and MPM Asset Management Investors BV5 LLC. |
(6) | Represents securities acquired by Roche Finance Ltd. and Roche Holdings, Inc. |
(7) | Represents securities acquired by a family trust. |
(8) | Represents securities acquired by a family trust. |
(9) | Represents securities acquired by a family trust. |
(10) | Represents securities acquired by Hale BioPharma Ventures LLC. |
Some of our directors are associated with our principal stockholders as indicated in the table below:
Director |
Principal Stockholder | |
William Gerber, M.D. |
Entities affiliated with Bay City Capital | |
Paul H. Klingenstein |
Entities affiliated with Aberdare Ventures | |
Louis Lacasse |
AgeChem Venture Fund L.P. | |
Shahzad Malik, M.D. |
Entities affiliated with Advent Private Equity | |
Marc Perret |
Coöperative Gilde Healthcare II U.A. | |
James Scopa |
Entities affiliated with MPM Capital |
Idun Pharmaceuticals, Inc.
In January 2013, we conducted a spin-off of our former subsidiary, Idun Pharmaceuticals, Inc., or Idun, to our stockholders at that time. Immediately prior to the spin-off, all rights relating to emricasan were distributed from Idun to us pursuant to a distribution agreement. The assets remaining in Idun at the time of the spin-off consisted solely of intellectual property rights and license and collaboration agreements unrelated to emricasan.
The spin-off was conducted as a dividend of all of the outstanding capital stock of Idun to our stockholders and, as a result, we no longer own any capital stock of Idun. The aggregate value of Idun at the time of the spin-off was deemed to be $9.6 million based on the valuation of an independent appraisal firm. Because the dividend was taxable to our stockholders and required us to withhold amounts with respect to certain of our non-U.S. stockholders, we agreed to advance the withholding amounts for these non-U.S. stockholders in exchange for promissory notes of equal amount.
Also in connection with the spin-off, we contributed $500,000 to Idun to provide for its initial working capital requirements and entered into a transition services agreement to provide operating services to Idun, generally consisting of accounting support, technology license administration and intellectual property maintenance. Idun must pay us for all direct costs as well as overhead and general and administrative expenses incurred in performing these services. As of March 31, 2013, Idun has not made any payment to us for services provided under the transition services agreement. The initial term of the transition services agreement ends on December 31, 2013, and will renew automatically for successive one year periods until terminated by either Idun or us upon 90 days prior notice to the other party.
In March 2013, we entered into a sublicense agreement with Idun in which we were granted the right to use the patent rights and know-how related to the screening and identification of emricasan. These rights were previously
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granted to Idun under license agreements with Thomas Jefferson University, or TJU. Under the sublicense, we are required to pay directly to TJU a royalty of less than one percent on net sales of emricasan. We also have the right to grant further sublicenses to third parties and are required to pay TJU a portion of any such sublicense revenue we receive. The sublicense agreement will expire upon the date which there are no longer any valid claims in any patents or patent applications sublicensed to us, unless earlier terminated. Idun may terminate the agreement upon a material uncured default. Each of Drs. Mento and Spada and Mr. Cashion continue to serve as officers of Idun in the same capacity as their officer positions with us, and all of our directors currently serve as directors of Idun.
Investor Rights Agreement
We entered into a first amended and restated investor rights agreement in February 2011 with the holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. This agreement provides for certain rights relating to the registration of their shares of common stock and common stock issuable upon conversion of their convertible preferred stock, a right of first refusal to purchase future securities sold by us and certain additional covenants made by us. Except for the registration rights (including the related provisions pursuant to which we have agreed to indemnify the parties to the investor rights agreement), all rights under this agreement will terminate upon completion of this offering. The registration rights will continue following this offering and will terminate seven years following the completion of this offering, or for any particular holder with registration rights, at such time following this offering when all securities held by that stockholder subject to registration rights may be sold pursuant to Rule 144 under the Securities Act in a three-month period. See Description of Capital StockRegistration Rights for additional information.
Voting Agreement
We entered into a first amended and restated voting agreement in February 2011 by and among us and certain of our stockholders, pursuant to which the following directors were each elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: Drs. Gerber, Malik, Mento and Van Wart and Messrs. Hale, Klingenstein, Lacasse, Perret and Scopa. Pursuant to the voting agreement, Dr. Mento, as our Chief Executive Officer, was initially selected to serve on our board of directors as a representative of holders of our common stock, as designated by a majority of our common stockholders. Drs. Gerber and Malik and Messrs. Klingenstein, Lacasse, Perret and Scopa were initially selected to serve on our board of directors as representatives of holders of our convertible preferred stock, as designated by Bay City Capital Fund IV, L.P., Advent Private Equity Fund IV, Aberdare Ventures III, L.P., AgeChem Venture Fund L.P., Coöperative Gilde Healthcare II U.A. and MPM BioVentures V, L.P., respectively. Mr. Hale and Dr. Van Wart were initially selected to serve on our board of directors as designated by a majority of our common and convertible preferred stock holders, voting together as a single class.
The voting agreement will terminate upon the closing of this offering, and members previously elected to our board of directors pursuant to this agreement will continue to serve as directors until they resign, are removed or their successors are duly elected by holders of our common stock. The composition of our board of directors after this offering is described in more detail under ManagementBoard Composition and Election of Directors.
Employment Agreements
We have entered into employment agreements with our named executive officers. For more information regarding these agreements, see the section in this prospectus entitled Executive and Director CompensationNarrative Disclosure to Compensation Tables.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers prior to the closing of this offering. These agreements, among other things, require us or will require us to indemnify each director (and in certain cases their related venture capital funds) and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the persons services as a director or executive officer.
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Our amended and restated certificate of incorporation and our amended and restated bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and officers, and we have purchased a policy of directors and officers liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. For further information, see Executive and Director CompensationLimitations of Liability and Indemnification Matters.
Stock Option Grants to Executive Officers and Directors
We have granted stock options to our executive officers and certain of our directors as more fully described in the section entitled Executive and Director Compensation.
Policies and Procedures for Related Person Transactions
Our board of directors has adopted a written related person transaction policy, to be effective upon the consummation of this offering, setting forth the policies and procedures for the review and approval or ratification of related-person transactions. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arms length transaction and the extent of the related persons interest in the transaction. All of the transactions described in this section occurred prior to the adoption of this policy.
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The following table sets forth information with respect to the beneficial ownership of our common stock as of March 31, 2013, and as adjusted to reflect the sale of shares of common stock in this offering, by:
| each of our named executive officers; |
| each of our directors; |
| all of our executive officers and directors as a group; and |
| each person or group of affiliated persons known by us to beneficially own more than 5% of our common stock. |
The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power. Applicable percentage ownership is based on 89,942,942 shares of common stock outstanding on March 31, 2013, which gives effect to the conversion of all outstanding shares of convertible preferred stock into shares of common stock. Our calculation of beneficial ownership after the offering gives additional effect to the issuance of shares of common stock as a result of the expected net exercise of outstanding warrants, or the 2010 Warrants, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), which 2010 Warrants will terminate if unexercised prior to the completion of this offering. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options, warrants or other rights held by such person that are currently exercisable or will become exercisable within 60 days of March 31, 2013 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed below is c/o Conatus Pharmaceuticals Inc., 4365 Executive Drive, Suite 200, San Diego, CA 92121. We believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
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Shares Beneficially Owned Prior to Offering |
Shares Beneficially Owned After Offering |
|||||||||||||
Name of Beneficial Owner |
Number | Percentage | Number | Percentage | ||||||||||
5% or Greater Stockholders |
||||||||||||||
Entities affiliated with Aberdare Ventures(1) |
17,833,569 | 19.8 | % | % | ||||||||||
One Embarcadero Center, Suite 4000 |
||||||||||||||
San Francisco, CA 94111 |
||||||||||||||
Entities affiliated with Advent Private Equity(2) |
16,154,385 | 18.0 | % | % | ||||||||||
25 Buckingham Gate |
||||||||||||||
London, United Kingdom |
||||||||||||||
SW1E 6LD |
||||||||||||||
Entities affiliated with Bay City Capital(3) |
16,154,393 | 18.0 | % | % | ||||||||||
750 Battery St., Ste. 400 |
||||||||||||||
San Francisco, CA 94111 |
||||||||||||||
Coöperative Gilde Healthcare II U.A. (4) |
10,769,599 | 12.0 | % | % | ||||||||||
Newtonlaan 91 |
||||||||||||||
P.O. Box 85067 |
||||||||||||||
3508 AB Utrecht |
||||||||||||||
The Netherlands |
||||||||||||||
Entities affiliated with MPM Capital(5) |
8,333,334 | 9.3 | % | % | ||||||||||
c/o MPM Asset Management |
||||||||||||||
200 Clarendon Street, 54th Floor |
||||||||||||||
Boston, MA 02116 |
||||||||||||||
AgeChem Venture Fund L.P.(6) |
5,555,556 | 6.2 | % | % | ||||||||||
1 Westmount Square, Suite 800 |
||||||||||||||
Montreal, Quebec H3Z 2P9 |
||||||||||||||
Canada |
||||||||||||||
Roche Holdings, Inc.(7) |
4,846,316 | 5.4 | % | % | ||||||||||
c/o Tax Department |
||||||||||||||
Genentech, Inc. |
||||||||||||||
1 DNA Way |
||||||||||||||
Bldg. 82MS24 |
||||||||||||||
South San Francisco, CA 94080 |
||||||||||||||
Named Executive Officers and Directors |
||||||||||||||
Steven J. Mento, Ph.D.(8) |
5,106,417 | 5.6 | % | % | ||||||||||
Alfred P. Spada, Ph.D.(9) |
2,388,927 | 2.6 | % | |||||||||||
Gary C. Burgess, M.B., Ch.B. M.Med.(10) |
1,000,000 | 1.1 | % | % | ||||||||||
David F. Hale(11) |
1,262,356 | 1.4 | % | % | ||||||||||
William Gerber, M.D. |
| | % | |||||||||||
Paul H. Klingenstein(1) |
17,833,569 | 19.8 | % | % | ||||||||||
Louis Lacasse(6) |
5,555,556 | 6.2 | % | |||||||||||
Shahzad Malik, M.D.(2) |
16,154,385 | 18.0 | % | % | ||||||||||
Marc Perret(4 ) |
10,769,599 | 12.0 | % | % | ||||||||||
James Scopa(5) |
8,333,334 | 9.3 | % | % | ||||||||||
Harold E. Van Wart, Ph.D.(12) |
250,000 | * | ||||||||||||
All executive officers and directors as a group (12 persons) (13) |
70,339,495 | 75.6 | % | % |
* | Less than 1%. |
(1) | Includes (a) 16,817,922 shares of common stock and 605,513 shares of common stock issuable upon the exercise of 2010 Warrants held by Aberdare Ventures III, L.P., and (b) 395,881 shares of common stock and 14,253 shares of common stock issuable upon the exercise of 2010 Warrants held by Aberdare Partners III, L.P. In addition, beneficial ownership after the offering gives additional effect to the issuance of and shares of common stock as a result of the expected net exercise of the 2010 |
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Warrants held by Aberdare Ventures III, L.P. and Aberdare Partners III, L.P., respectively, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). Mr. Klingenstein serves as Manager of Aberdare GP III, L.L.C., the general partner of Aberdare Ventures III, L.P. and Aberdare Partners III, L.P. Aberdare GP III, L.L.C. owns no shares directly. Mr. Klingenstein shares voting and investment control over the shares owned by Aberdare Ventures III, L.P. and Aberdare Partners III, L.P., and may be deemed to beneficially own such shares. Mr. Klingenstein disclaims beneficial ownership of the shares held by Aberdare Ventures III, L.P. and Aberdare Partners III, L.P., except to the extent of his pecuniary interest therein. |
(2) | Includes (a) 5,551,195 shares of common stock and 205,845 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund III A, (b) 2,720,121 shares of common stock and 100,865 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund III B, (c) 758,770 shares of common stock and 28,135 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund III C, (d) 1,492,488 shares of common stock and 55,342 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund III D, (e) 214,746 shares of common stock and 7,962 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund III GmbH & Co KG, (f) 178,955 shares of common stock and 6,635 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund III Affiliates, (g) 53,687 shares of common stock and 1,990 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Management III Limited Partnership, (h) 4,561,213 shares of common stock and 169,135 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Private Equity Fund IV, and (i) 45,611 shares of common stock and 1,690 shares of common stock issuable upon the exercise of 2010 Warrants held by Advent Management IV Limited Partnership. In addition, beneficial ownership after the offering gives additional effect to the issuance of , , , , , , , and shares of common stock as a result of the expected net exercise of the 2010 Warrants held by Advent Private Equity Fund III A, Advent Private Equity Fund III B, Advent Private Equity Fund III C, Advent Private Equity Fund III D, Advent Private Equity Fund III GmbH & Co KG, Advent Private Equity Fund III Affiliates, Advent Management III Limited Partnership, Advent Private Equity Fund IV and Advent Management IV Limited Partnership, respectively, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). Advent Venture Partners LLP owns 100% of Advent Management III Limited, which is General Partner of Advent Management III Limited Partnership, which is General Partner of each of Advent Private Equity Fund III A, Advent Private Equity Fund III B, Advent Private Equity Fund III C, Advent Private Equity Fund III D and Advent Private Equity Fund III Affiliates. Advent Venture Partners LLP also owns 100% of Advent Limited and Advent Private Equity Fund IV. Advent Limited owns 100% of Advent Private Equity GmbH, which is General Partner of Advent Private Equity Fund III GmbH & Co. KG. Voting and investment power over the shares held by each named fund may be deemed to be shared with Advent Venture Partners LLP due to the affiliate relationship described above. Each named fund disclaims beneficial ownership of the others shares. Dr. Malik is a general partner of Advent Venture Partners LLP and shares voting and investment power over the shares, and disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. |
(3) | Includes (a) 15,248,120 shares of common stock and 565,418 shares of common stock issuable upon the exercise of 2010 Warrants held by Bay City Capital Fund IV, L.P. and (b) 328,669 shares of common stock and 12,186 shares of common stock issuable upon the exercise of 2010 Warrants held by Bay City Capital Fund IV Co-Investment Fund, L.P. In addition, beneficial ownership after the offering gives additional effect to the issuance of and shares of common stock as a result of the expected net exercise of the 2010 Warrants held by Bay City Capital Fund IV, L.P. and Bay City Capital Fund IV Co-Investment Fund, L.P., respectively, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). Bay City Capital Management IV (GP IV) is the General Partner of Bay City Capital |
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Fund, IV and Bay City Capital Fund IV Co-Investment (collectively, BCC IV). Bay City Capital LLC (BCC LLC) is the Manager of GP IV. BCC IV has shared voting and dispositive power with respect to the shares held by BCC IV. GP IV has sole voting and dispositive power with respect to the shares held by BCC IV. GP IV disclaims beneficial ownership of these shares, except to the extent of its pecuniary interest therein. BCC LLC has sole voting and dispositive power with respect to the shares held by BCC IV. BCC LLC disclaims beneficial ownership of these shares, except to the extent of its pecuniary interest therein. Carl Goldfischer and Fred Craves are managing directors of Bay City Capital LLC and have voting and dispositive power with respect to shares held by Bay City Capital Funds. Dr. Goldfischer and Dr. Craves each disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein. |
(4) | Includes 10,384,529 shares of common stock and 385,070 shares of common stock issuable upon the exercise of 2010 Warrants. The manager of Coöperative Gilde Healthcare II U.A. is Gilde Healthcare II Management B.V., which is indirectly owned by three managing partners, Edwin de Graaf, Marc Olivier Perret and Martenmanshurk B.V. (of which Pieter van der Meer is the owner and manager), through a holding entity, Gilde Healthcare Holding B.V. Gilde Healthcare Holding B.V. is owned in equal thirds by the three managing partners. Each of Edwin de Graaf, Marc Olivier Perret and Pieter van der Meer share voting and dispositive power of the shares, and disclaim beneficial ownership of the shares except to the extent of their respective pecuniary interest therein. |
(5) | Includes (a) 3,905,170 shares of common stock held by MPM BioVentures IV-QP, L.P., (b) 150,450 shares of common stock held by MPM BioVentures IV GmbH & Co. Beteiligungs KG, (c) 111,047 shares of common stock held by MPM Asset Management Investors BV4 LLC, (d) 4,010,853 shares of common stock held by MPM BioVentures V, L.P. and (e) 155,814 shares of common stock held by MPM Asset Management Investors BV5 LLC. MPM Bioventures IV LLC is the Managing Member of MPM Bioventures IV GP LLC and the Manager of MPM Asset Management Investors BV4 LLC. The Members of MPM Bioventures IV GP LLC share voting and investment power of the shares. MPM Bioventures V GP LLC is the general partner of MPM BioVentures V, L.P. MPM Bioventures V LLC is the Managing Member of MPM Bioventures V GP LLC and the Manager of MPM Asset Management Investors BV5 LLC. The Members of MPM Bioventures V LLC share voting and investment power of the shares. Luke Evnin, Todd Foley, Ansbert Gadicke, Vaughn Kalian, James Scopa and John Vander Vort are the members of each of MPM Bioventures IV GP LLC and MPM Bioventures V LLC and have shared power to vote, hold and dispose of the shares beneficially held by such entities. Each disclaims beneficial ownership of the shares except to the extent of his respective pecuniary interest therein. |
(6) | The general partner of AgeChem Venture Fund, L.P. is AgeChem Financial Inc., for which Mr. Lacasse serves as President. Mr. Lacasse disclaims beneficial ownership of the shares except to the extent of his pecuniary interest therein. |
(7) | Includes (a) 4,509,702 shares of common stock and 173,281 shares of common stock issuable upon the exercise of 2010 Warrants held by Roche Finance Ltd. and (b) 163,333 shares of common stock held by Roche Holdings, Inc. Roche Holdings, Inc. is an indirect wholly-owned subsidiary of Roche Holding Ltd. |
(8) | Includes (a) 610,000 shares Dr. Mento acquired upon the early exercise of options, 535,625 of which are subject to our right of repurchase within 60 days of March 31, 2013 and (b) 2,050,000 shares Dr. Mento has the right to acquire pursuant to outstanding options which are immediately exercisable, none of which would be subject to our right of repurchase within 60 days of March 31, 2013. 3,056,417 of the shares are held by family trusts, of which Dr. Mento is a trustee. |
(9) | Includes (a) 250,000 shares Dr. Spada acquired upon the early exercise of options, 214,583 of which are subject to our right of repurchase within 60 days of March 31, 2013 and (b) 450,000 shares Dr. Spada has the right to acquire pursuant to outstanding options which are immediately exercisable, none of which would be subject to our right of repurchase within 60 days of March 31, 2013. 1,938,927 of the shares are held by a family trust, of which Dr. Spada is a trustee. |
(10) | Includes 1,000,000 shares Dr. Burgess acquired upon the early exercise of options, 718,750 of which are subject to our right of repurchase within 60 days of March 31, 2013. |
(11) | Includes 100,000 shares Mr. Hale has the right to acquire pursuant to outstanding options which are immediately exercisable, none of which would be subject to our right of repurchase within 60 days of March 31, 2013. 1,062,356 of the shares are held by Hale BioPharma Ventures, LLC, of which Mr. Hale |
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serves as CEO, and 100,000 shares held by Hale Trading Company, LP, of which Mr. Hale is a General Partner. Mr. Hale holds sole voting and investment power with respect to the shares held by these entities. |
(12) | Includes 250,000 shares Dr. Van Wart has the right to acquire pursuant to outstanding options which are immediately exercisable, none of which would be subject to our right of repurchase within 60 days of March 31, 2013. |
(13) | Includes shares of common stock issuable upon the exercise of 2010 Warrants, shares of common stock issued upon the early exercise of options, and shares of common stock issuable upon the exercise of outstanding options which are immediately exercisable, as set forth in previous footnotes (other than footnote 7). |
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General
Following the closing of this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. The following description summarizes some of the terms of our amended and restated certificate of incorporation and amended and restated bylaws, our outstanding warrants, the investors rights agreement and of the Delaware General Corporation Law. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our amended and restated certificate of incorporation, amended and restated bylaws, warrants and investors rights agreement, copies of which have been filed or incorporated by reference as exhibits to the registration statement of which the prospectus is a part, as well as the relevant provisions of the Delaware General Corporation Law.
Common Stock
As of December 31, 2012, there were shares of our common stock outstanding and held of record by 76 stockholders, assuming (1) the automatic conversion of all outstanding shares of our convertible preferred stock into shares of common stock, which we expect to automatically occur immediately prior to the closing of this offering, and (2) the issuance of shares of common stock as a result of the expected net exercise of outstanding warrants, or the 2010 Warrants, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), which 2010 Warrants will terminate if unexercised prior to the completion of this offering. Under the terms of our amended and restated certificate of incorporation, which will become effective immediately prior to the closing of this offering, holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose, other than any directors that holders of any preferred stock we may issue may be entitled to elect. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by the board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in the assets legally available for distribution to stockholders after the payment of or provision for all of our debts and other liabilities, subject to the prior rights of any preferred stock then outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds provisions applicable to the common stock. All outstanding shares of common stock are, and the common stock to be outstanding upon completion of this offering will be, duly authorized, validly issued, fully paid and nonassessable. The rights, preferences and privileges of 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 and issue in the future.
Preferred Stock
Under the terms of our amended and restated certificate of incorporation, which will become effective immediately prior to the closing of this offering, our board of directors has the authority, without further action by our stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the dividend, voting and other rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.
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Options
As of December 31, 2012, options to purchase 5,694,500 shares of our common stock were outstanding under our 2006 equity incentive plan, of which 4,057,281 were vested and all of which were exercisable as of that date.
Warrants
In March and October 2010, in connection with closings under our convertible note and warrant financing, we issued the 2010 Warrants to investors exercisable for an aggregate of 2,333,320 shares of our Series A convertible preferred stock at an exercise price of $0.01 per share. The 2010 Warrants contain a net exercise provision under which the holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive, a net amount of shares of our common stock based on the fair market value of our common stock at the time of the net exercise of the warrant after deduction of the aggregate exercise price. The 2010 Warrants expire ten years from their date of issuance, subject to their earlier termination upon the completion of this offering and certain mergers, acquisitions and similar transactions. We expect the 2010 Warrants to be net exercised in connection with the completion of this offering, resulting in the issuance of an aggregate of shares of common stock assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). If these 2010 Warrants are not exercised prior to the completion of this offering, they will terminate.
Registration Rights
As of December 31, 2012, holders of shares of our common stock, which includes all of the shares of common stock issuable upon the automatic conversion of our convertible preferred stock immediately prior to the closing of this offering and shares of common stock issuable as a result of the expected net exercise of the 2010 Warrants in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), will be entitled to the following rights with respect to the registration of such shares for public resale under the Securities Act, pursuant to an investor rights agreement by and among us and certain of our stockholders. The registration of shares of common stock as a result of the following rights being exercised would enable holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective.
Demand Registration Rights
If at any time beginning six months after this offering the holders of at least 30% of the registrable securities request in writing that we effect a registration with respect at least 30% of the registrable securities then outstanding or a lesser percentage if shares in an offering with an anticipated aggregate offering price of at least $5.0 million, we may be required to register their shares. We are obligated to effect at most two registrations in any 12-month period for the holders of registrable securities in response to these demand registration rights. If the holders requesting registration intend to distribute their shares by means of an underwriting, the managing underwriter of such offering will have the right to limit the numbers of shares to be underwritten for reasons related to the marketing of the shares.
Piggyback Registration Rights
If at any time after this offering we propose to register any shares of our common stock under the Securities Act, subject to certain exceptions, the holders of registrable securities will be entitled to notice of the registration and to include their shares of registrable securities in the registration. If our proposed registration involves an underwriting, the managing underwriter of such offering will have the right to limit the number of shares to be underwritten for reasons related to the marketing of the shares.
Form S-3 Registration Rights
If at any time after we become entitled under the Securities Act to register our shares on Form S-3 a holder of registrable securities requests in writing that we register their shares for public resale on Form S-3 and the reasonably anticipated price to the public of the offering is $1.0 million or more, we will be required to use our best efforts to effect such registration; provided, however, that we will not be required to effect such a
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registration if, within the preceding 12 months, we have already effected two registrations on Form S-3 for the holders of registrable securities.
Expenses
Ordinarily, other than underwriting discounts and commissions, we will be required to pay all expenses incurred by us related to any registration effected pursuant to the exercise of these registration rights. These expenses may include all registration and filing fees, printing expenses, fees and disbursements of our counsel, reasonable fees and disbursements of a counsel for the selling securityholders, blue sky fees and expenses and the expenses of any special audits incident to the registration.
Termination of Registration Rights
The registration rights terminate upon the earlier of seven years after the effective date of the registration statement of which this prospectus is a part, or, with respect to the registration rights of an individual holder, when the holder can sell all of such holders registrable securities in a three-month period in compliance with Rule 144 of the Securities Act.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Some provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.
These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Undesignated Preferred Stock
The ability of our board of directors, without action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Stockholder Meetings
Our amended and restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president, or by a resolution adopted by a majority of our board of directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Elimination of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and amended and restated bylaws eliminate the right of stockholders to act by written consent without a meeting.
Staggered Board
Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see
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ManagementBoard Composition and Election of Directors. This system of electing and removing directors may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.
Removal of Directors
Our amended and restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 66 2⁄3% of the total voting power of all of our outstanding voting stock then entitled to vote in the election of directors.
Stockholders Not Entitled to Cumulative Voting
Our amended and restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed to be interested stockholders from engaging in a business combination with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporations voting stock. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.
Amendment of Charter Provisions
The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 66 2⁄3% of the total voting power of all of our outstanding voting stock.
The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be .
NASDAQ Global Market
We have applied to have our common stock listed on The NASDAQ Global Market under the symbol CNAT.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock. Although we have applied to have our common stock listed on The NASDAQ Global Market, we cannot assure you that there will be an active public market for our common stock.
Based on the number of shares of our common stock outstanding as of December 31, 2012 and assuming (1) the issuance of shares in this offering, (2) the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, which will automatically occur immediately prior to the closing of the offering, and (3) the issuance of shares of common stock as a result of the expected net exercise of outstanding warrants, or the 2010 Warrants, in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), which 2010 Warrants will terminate if unexercised prior to the completion of this offering, (4) no exercise of the underwriters option to purchase additional shares of common stock, and (5) no exercise of outstanding options, we will have outstanding an aggregate of approximately shares of common stock.
Of these shares, all shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act. Shares purchased by our affiliates would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.
The remaining shares of common stock will be restricted securities, as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act, each of which is summarized below. We expect that substantially all of these shares will be subject to the 180-day lock-up period under the lock-up agreements described below.
In addition, of the 5,694,500 shares of our common stock that were subject to stock options outstanding as of December 31, 2012, options to purchase 4,057,281 of such shares of common stock were vested as of such date and, upon exercise, these shares will be eligible for sale subject to the lockup agreements described below and Rules 144 and 701 under the Securities Act.
Lock-Up Agreements
We and each of our directors and executive officers and holders of substantially all of our outstanding capital stock have agreed that we and they will not, subject to limited exceptions that are described in more detail in the section in this prospectus entitled Underwriting, during the period ending 180 days after the date of this prospectus:
| sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open put equivalent position within the meaning of Rule 16a-l(h) under the Exchange Act; |
| otherwise dispose of any shares of our common stock, options or warrants to acquire shares of our common stock, or securities exchangeable or exercisable for or convertible into shares of our common stock, currently or hereafter owned either of record or beneficially; or |
| publicly announce an intention to do any of the foregoing. |
Stifel, Nicolaus & Company, Incorporated and Piper Jaffray & Co. may, in their sole discretion and at any time or from time to time before the termination of the 180-day period, without public notice, release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the underwriters and any of our stockholders who will execute a lock-up agreement providing consent to the sale of shares prior to the expiration of the restricted period.
Upon the expiration of the lock-up period, substantially all of the shares subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed above.
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Rule 144
Affiliate Resales of Restricted Securities
In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours, or who was an affiliate at any time during the 90 days before a sale, who has beneficially owned shares of our common stock for at least six months would be entitled to sell in brokers transactions or certain riskless principal transactions or to market makers, a number of shares within any three-month period that does not exceed the greater of:
| 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or |
| the average weekly trading volume in our common stock on The NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with the Securities and Exchange Commission and The NASDAQ Global Market concurrently with either the placing of a sale order with the broker or the execution of a sale directly with a market maker.
Non-Affiliate Resales of Restricted Securities
In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is not an affiliate of ours at the time of sale, and has not been an affiliate at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.
Non-affiliate resales are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144.
Rule 701
In general, under Rule 701, any of an issuers employees, directors, officers, consultants or advisors who purchases shares from the issuer in connection with a compensatory stock or option plan or other written agreement before the effective date of a registration statement under the Securities Act is entitled to sell such shares 90 days after such effective date in reliance on Rule 144. An affiliate of the issuer can resell shares in reliance on Rule 144 without having to comply with the holding period requirement, and non-affiliates of the issuer can resell shares in reliance on Rule 144 without having to comply with the current public information and holding period requirements.
Equity Plans
We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our equity incentive plans and employee stock purchase plan. We expect to file the registration statement covering shares offered pursuant to our stock plans shortly after the date of this prospectus, permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market subject to compliance with the resale provisions of Rule 144.
Registration Rights
As of December 31, 2012, holders of shares of our common stock, which includes all of the shares of common stock issuable upon the automatic conversion of our convertible preferred stock immediately prior to the closing of this offering and shares of common stock issuable as a result of the expected
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net exercise of the 2010 Warrants in connection with the completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus), or their transferees will be entitled to various rights with respect to the registration of these shares under the Securities Act upon the closing of this offering. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See Description of Capital StockRegistration Rights for additional information. Shares covered by a registration statement will be eligible for sale in the public market upon the expiration or release from the terms of the lock-up agreement.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK
The following is a summary of the material United States federal income tax consequences to non-U.S. holders (as defined below) of the acquisition, ownership and disposition of our common stock issued pursuant to this offering. This discussion is not a complete analysis of all of the potential United States federal income tax consequences relating thereto, nor does it address any estate and gift tax consequences or any tax consequences arising under any state, local or foreign tax laws, or any other United States federal tax laws. This discussion is based on the Internal Revenue Code of 1986, as amended (the Code), United States Treasury regulations promulgated thereunder (Treasury Regulations), judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service (IRS), all as in effect as of the date of this offering. These authorities may change, possibly retroactively, resulting in United States federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of our common stock, or that any such contrary position would not be sustained by a court.
This discussion is limited to non-U.S. holders who purchase our common stock issued pursuant to this offering and who hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the United States federal income tax consequences that may be relevant to a particular holder in light of such holders particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the United States federal income tax laws, including, without limitation:
| banks, thrifts, insurance companies and other financial institutions; |
| tax-exempt organizations; |
| partnerships, S corporations or other pass-through entities; |
| real estate investment trusts and regulated investment companies; |
| brokers, dealers or traders in securities, commodities or currencies; |
| United States expatriates and certain former citizens or long-term residents of the United States; |
| controlled foreign corporations, passive foreign investment companies or corporations that accumulate earnings to avoid U.S. federal income tax; |
| persons that own, or are deemed to own, more than 5% of our outstanding common stock (except to the extent specifically set forth below); |
| persons deemed to sell our common stock under the constructive sale provisions of the Code; |
| persons subject to the alternative minimum tax; |
| persons that hold our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
| persons that hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; or |
| tax-qualified retirement plans. |
If a partnership (or other entity taxed as a partnership for United States federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock and partners in such partnerships are urged to consult their tax advisors regarding the specific United States federal income tax consequences to them of acquiring, owning or disposing of our common stock.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY OTHER UNITED STATES FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATY.
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Definition of Non-U.S. Holder
For purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not a U.S. person or a partnership for United States federal income tax purposes. A U.S. person is any of the following:
| an individual citizen or resident of the United States; |
| a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia; |
| an estate the income of which is subject to United States federal income tax regardless of its source; or |
| a trust (1) whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person for United States federal income tax purposes. |
Distributions on Our Common Stock
As described in the section entitled Dividend Policy, we do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, if we do make cash or other property distributions on our common stock, such distributions generally will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. Amounts not treated as dividends for United States federal income tax purposes will constitute a return of capital and will first be applied against and reduce a non-U.S. holders adjusted tax basis in the common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described under Dispositions of Our Common Stock below.
Dividends paid to a non-U.S. holder of our common stock that are not effectively connected with a United States trade or business conducted by such non-U.S. holder generally will be subject to United States federal withholding tax at a rate of 30% of the gross amount of the dividends, or such lower rate specified by an applicable tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such non-U.S. holders qualification for the reduced rate. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. If the non-U.S. holder holds the 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, who then will be required to provide certification to us or our paying agent, either directly or through other intermediaries. Non-U.S. holders that do not timely provide us or our paying agent with the required certification, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding possible entitlement to benefits under a tax treaty.
If a non-U.S. holder holds our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on the shares of our common stock are effectively connected with such non-U.S. holders United States trade or business (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States), the non-U.S. holder will be exempt from United States federal withholding tax. To claim the exemption, the non-U.S. holder must generally furnish to us or our paying agent a valid IRS Form W-8ECI (or applicable successor form), certifying that the dividends are effectively connected with the non-U.S. holders conduct of a trade or business within the United States. Any dividends paid on our common stock that are effectively connected with a non-U.S. holders United States trade or business (and if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally will be subject to United States federal income tax on a net income basis in the same manner as if such non-U.S. holder were a U.S. person and, for a non-U.S. holder that is a corporation, also may be subject to a branch profits tax equal to 30% (or such lower rate specified by an applicable tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
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Dispositions of Our Common Stock
Subject to the discussion below regarding backup withholding, a non-U.S. holder generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of our common stock, unless:
| the gain is effectively connected with the non-U.S. holders conduct of a trade or business in the United States, and if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States; |
| the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the sale or disposition, and certain other requirements are met; or |
| our common stock constitutes a United States real property interest by reason of our status as a United States real property holding corporation (USRPHC) for United States federal income tax purposes at any time within the shorter of (i) the five-year period ending on the date of the sale or disposition of our common stock or (ii) the non-U.S. holders holding period for our common stock. |
Unless an applicable treaty provides otherwise, the gain described in the first bullet point above generally will be subject to United States federal income tax on a net income basis in the same manner as if such non-U.S. holder were a U.S. person. A non-U.S. holder that is a corporation also may be subject to a branch profits tax equal to 30% (or such lower rate specified by an applicable tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Gain described in the second bullet point above generally will be subject to United States federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset by United States source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe that we are not currently, and we do not anticipate becoming, a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. In the event we do become a USRPHC, as long as our common stock is regularly traded on an established securities market, our common stock will be treated as a U.S. real property interest only with respect to a non-U.S. holder that actually or constructively held more than 5% of our common stock at any time during the shorter of (i) the five-year period ending on the date of the sale or disposition of our common stock or (ii) the non-U.S. holders holding period for our common stock. If gain on the sale or other taxable disposition of our common stock were subject to taxation under the third bullet point above, the non-U.S. holder would be subject to regular United States federal income tax with respect to such gain in generally the same manner as a U.S. person.
Information Reporting and Backup Withholding
Generally, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such non-U.S. holder and the amount, if any, of tax withheld with respect to those dividends. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under certain circumstances, the Code imposes backup withholding on certain reportable payments. Backup withholding, however, generally will not apply to payments of dividends to a non-U.S. holder of our common stock provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or otherwise establishes an exemption. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient.
Unless a non-U.S. holder complies with certification procedures to establish that it is not a U.S. person, information returns may be filed with the IRS in connection with, and the non-U.S. holder may be subject to
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backup withholding on the proceeds from, a sale or other disposition of our common stock. The certification procedures described in the above paragraph will satisfy these certification requirements as well.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holders United States federal income tax liability, provided the required information is timely furnished to the IRS.
Foreign Accounts
Withholding taxes may apply to certain types of payments made to foreign financial institutions (as specially defined under those rules) and certain other non-U.S. entities. The failure to comply with additional certification, information reporting and other specified requirements could result in a withholding tax being imposed on payments of dividends and sales proceeds to foreign intermediaries and certain non-U.S. holders. A 30% withholding tax is imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or to a foreign non-financial entity, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the foreign non-financial entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner, or (iii) the foreign financial institution or foreign non-financial entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (i) above, it must enter into an agreement with the United States Treasury requiring, among other things, that it undertake to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders.
Recently issued final Treasury Regulations provide that such rules will generally apply to payments of dividends made on or after January 1, 2014 and to payments of gross proceeds from a sale or other disposition of common stock on or after January 1, 2017. Prospective investors should consult their tax advisors regarding these withholding provisions.
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Subject to the terms and conditions set forth in an underwriting agreement, each of the underwriters named below has severally agreed to purchase from us the aggregate number of shares of common stock set forth opposite their respective names below:
Underwriters |
Number of Shares | |
Stifel, Nicolaus & Company, Incorporated |
||
Piper Jaffray & Co. |
||
JMP Securities LLC |
||
SunTrust Robinson Humphrey, Inc. |
||
| ||
Total |
||
|
The underwriting agreement provides that the obligations of the several underwriters are subject to various conditions, including approval of legal matters by counsel. The nature of the underwriters obligations commits them to purchase and pay for all of the shares of common stock listed above if any are purchased. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
The underwriters expect to deliver the shares of common stock to purchasers on or about , 2013.
Over-Allotment Option
We have granted a 30-day over-allotment option to the underwriters to purchase up to a total of additional shares of our common stock from us, at the initial public offering price, less the underwriting discounts and commissions payable by us, as set forth on the cover page of this prospectus. If the underwriters exercise this option in whole or in part, then each of the underwriters will be separately committed, subject to the conditions described in the underwriting agreement, to purchase the additional shares of our common stock in proportion to their respective commitments set forth in the table above. We will pay the expenses associated with the exercise of the over-allotment option.
Lock-Up Agreements
We and the holders (including all of our directors and executive officers) of substantially all of the shares of our common stock outstanding prior to this offering have agreed that, without the prior written consent of each of Stifel, Nicolaus & Company, Incorporated and Piper Jaffray & Co., we and they will not directly or indirectly:
| offer, sell, contract to sell (including any short sale), pledge, hypothecate, establish an open put equivalent position within the meaning of Rule 16a-1(h) under the Exchange Act, grant any option, right or warrant for the sale of, purchase any option or contract to sell, sell any option or contract to purchase, or otherwise encumber, dispose of or transfer, or grant any rights with respect to, directly or indirectly, any shares of common stock or securities convertible into or exchangeable or exercisable for any shares of common stock; |
| enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction is to be settled by delivery of the common stock or other securities, in cash or otherwise; or |
| publicly disclose the intention to do any of the foregoing, |
for a period of 180 days after the date of this prospectus. However, in the case of our officers, directors and stockholders, these lock-up restrictions will not apply to:
| bona fide gifts made by the holder; |
| the surrender or forfeiture of shares of common stock to us to satisfy tax withholding obligations upon exercise or vesting of stock options or equity awards; |
| transfers of common stock or any security convertible into or exercisable for common stock to an immediate family member, an immediate family member of a domestic partner or a trust for the benefit of the undersigned, a domestic partner or an immediate family member; |
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| transfers of shares of common stock or any security convertible into or exercisable for common stock to any corporation, partnership, limited liability company or other entity all of the beneficial ownership interests of which are held exclusively by the holder, a domestic partner and/or one or more family members of the holder or the holders domestic partner in a transaction not involving a disposition for value; |
| transfers of shares of common stock or any security convertible into or exercisable for common stock upon death by will or intestate succession; |
| distributions of shares of common stock or securities convertible into or exercisable for common stock to members, partners or stockholders of the holder; |
| the exercise of any option, warrant or other right to acquire shares of common stock, the settlement of any stock-settled stock appreciation rights, restricted stock or restricted stock units, or the conversion of any convertible security into our securities; |
| securities transferred to one or more affiliates of the holder and distributions of securities to partners, members or stockholders of the holder; |
| transactions relating to securities acquired in open market transactions after the date of this prospectus; |
| the entry into a trading plan established pursuant to Rule 10b5-1 under the Exchange Act, provided that such plan does not provide for any sales or other dispositions of shares of common stock during the 180-day restricted period; or |
| any shares purchased by the holder in this offering. |
Except for transfers related to securities acquired on the open market or in this offering or to the surrender or forfeiture of shares of common stock to us to satisfy tax withholding obligations upon exercise or vesting of stock options or equity awards, as described above, any transferee under the excepted transfers above must agree in writing, prior to the transfer, to be bound by the lock-up agreements.
Additionally, in our case, the lock-up restrictions will not apply to:
| shares sold in this offering; |
| equity based awards granted pursuant to our equity incentive plans referred to in this prospectus, including any amendments to those plans, and shares of common stock issued upon the exercise of any equity based awards; |
| shares of common stock issued upon the conversion of outstanding securities described in this prospectus; |
| the filing of a registration statement on Form S-8 relating to the registration of shares issuable pursuant to our equity incentive plans; |
| shares of common stock issued in satisfaction of the accumulated dividend on our outstanding convertible preferred stock; or |
| shares of common stock or any securities convertible into, or exercisable, or exchangeable for, shares of common stock, issued to lenders or financial institutions in connection with bona fide debt or credit arrangements as long as (x) the aggregate number of shares of common stock issued or issuable does not exceed 5% of the number of shares of common stock outstanding immediately after this offering, and (y) each recipient of any such shares or other securities agrees to restrictions on the resale of such securities that are consistent with the lock-up agreements described above. |
Stifel, Nicolaus & Company, Incorporated and Piper Jaffray & Co., 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 with or without notice. When determining whether or not to release common stock and other securities from lock-up agreements, Stifel, Nicolaus & Company, Incorporated and Piper Jaffray & Co. will consider, among other factors, the holders reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.
Determination of Offering Price
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and Stifel, Nicolaus & Company, Incorporated and
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Piper Jaffray & Co., as representatives of the several underwriters. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price will include:
| the information set forth in this prospectus and otherwise available to the representatives; |
| our history and prospects, including our past and present financial performance and our prospects for future earnings; |
| the history and prospects of companies in our industry; |
| prior offerings of those companies; |
| our capital structure; |
| an assessment of our management and their experience; |
| general conditions of the securities markets at the time of the offering; and |
| other factors as we deem relevant. |
We cannot assure you that an active or orderly trading market will develop for our common stock or that our common stock will trade in the public markets subsequent to this offering at or above the initial public offering price.
Commissions and Expenses
The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus, and at this price less a concession not in excess of $ per share of common stock to other dealers specified in a master agreement among underwriters who are members of the Financial Industry Regulatory Authority, Inc. The underwriters may allow, and the other dealers specified may reallow, concessions not in excess of $ per share of common stock to these other dealers. After this offering, the offering price, concessions, and other selling terms may be changed by the underwriters. Our common stock is offered subject to receipt and acceptance by the underwriters and to certain other conditions, including the right to reject orders in whole or in part.
The following table summarizes the compensation to be paid to the underwriters by us and the proceeds, before expenses, payable to us:
Total | ||||||
Per Share | Without Over-Allotment |
With Over-Allotment | ||||
Public offering price |
||||||
Underwriting discounts and commissions |
||||||
Proceeds, before expenses, to us |
We estimate that the total expenses of the offering payable by us, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, will be approximately $ million.
Indemnification of Underwriters
We will indemnify the underwriters against some civil liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments the underwriters may be required to make in respect of those liabilities.
NASDAQ Market Listing
We have applied to have our common stock listed on The NASDAQ Global Market under the symbol CNAT.
Short Sales, Stabilizing Transactions and Penalty Bids
In order to facilitate this offering, persons participating in this offering may engage in transactions that stabilize, maintain, or otherwise affect the price of our common stock during and after this offering. Specifically,
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the underwriters may engage in the following activities in accordance with the rules of the Securities and Exchange Commission.
Short sales. Short sales involve the sales by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are short sales made in an amount not greater than the underwriters over-allotment option to purchase additional shares from us in this offering. The underwriters may close out any covered short position by either exercising their over-allotment option to purchase shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are any short sales in excess of such over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering.
Stabilizing transactions. The underwriters may make bids for or purchases of the shares for the purpose of pegging, fixing, or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.
Penalty bids. If the underwriters purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering. Stabilization and syndicate covering transactions may cause the price of the shares to be higher than it would be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares.
The transactions above may occur on The NASDAQ Global Market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. If these transactions are commenced, they may be discontinued without notice at any time.
Discretionary Sales
The underwriters have informed us that they do not expect to confirm sales of common stock offered by this prospectus to accounts over which they exercise discretionary authority without obtaining the specific approval of the account holder.
Electronic Distribution
A prospectus in electronic format may be made available on the internet sites or through other online services maintained by one or more of the underwriters participating in this offering, or by their affiliates. Other than the prospectus in electronic format, the information on any underwriters web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
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, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their affiliates have in the past provided, and may in the future from time to time provide, investment banking and other financing and banking services to us, for which they have in the past received, and may in the future receive, customary fees and reimbursement for their expenses. 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 derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any
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time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments.
European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of securities described in this prospectus may not be made to the public in that relevant member state other than:
| to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; |
| to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives; or |
| in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive, |
provided that no such offer of securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive. For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the securities as contemplated in this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the securities on behalf of us or the underwriters.
United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (Qualified Investors) that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
France
This prospectus has not been prepared in the context of a public offering of financial securities in France within the meaning of Article L.411-1 of the French Code Monétaire et Financier and Title I of Book II of the Reglement Général of the Autorité des marchés financiers (the AMF) and therefore has not been and will not be filed with the AMF for prior approval or submitted for clearance to the AMF. Consequently, the shares of our common stock may not be, directly or indirectly, offered or sold to the public in France and offers and sales of the shares of our common stock may only be made in France to qualified investors (investisseurs qualifiés) acting for their own, as defined in and in accordance with Articles L.411-2 and D.411-1 to D.411-4, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code Monétaire et Financier. Neither this prospectus nor any other offering material may be released, issued or distributed to the public in France or used in connection with any offer for
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subscription on sale of the shares of our common stock to the public in France. The subsequent direct or indirect retransfer of the shares of our common stock to the public in France may only be made in compliance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code Monétaire et Financier.
Notice to Residents of Germany
Each person who is in possession of this prospectus is aware of the fact that no German securities prospectus (wertpapierprospekt) within the meaning of the securities prospectus act (wertpapier-prospektgesetz, the act) of the federal republic of Germany has been or will be published with respect to the shares of our common stock. In particular, each underwriter has represented that it has not engaged and has agreed that it will not engage in a public offering in the federal republic of Germany (ôffertliches angebot) within the meaning of the act with respect to any of the shares of our common stock otherwise than in accordance with the act and all other applicable legal and regulatory requirements.
Notice to Residents of Switzerland
The securities which are the subject of the offering contemplated by this prospectus may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This prospectus 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. None of this prospectus or any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
None of this prospectus or any other offering or marketing material relating to the offering, us or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the securities.
Notice to Residents of the Netherlands
The offering of the shares of our common stock is not a public offering in The Netherlands. The shares of our common stock may not be offered or sold to individuals or legal entities in The Netherlands unless (i) a prospectus relating to the offer is available to the public, which has been approved by the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten) or by the competent supervisory authority of another state that is a member of the European Union or party to the Agreement on the European Economic Area, as amended or (ii) an exception or exemption applies to the offer pursuant to Article 5:3 of The Netherlands Financial Supervision Act (Wet op het financieel toezicht) or Article 53 paragraph 2 or 3 of the Exemption Regulation of the Financial Supervision Act, for instance due to the offer targeting exclusively qualified investors (gekwalificeerde beleggers) within the meaning of Article 1:1 of The Netherlands Financial Supervision Act.
Notice to Residents of Japan
The underwriters will not offer or sell any of the shares of our common stock directly or indirectly in Japan or to, or for the benefit of, any Japanese person or to others, for re-offering or re-sale directly or indirectly in Japan or to any Japanese person, except in each case pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law of Japan and any other applicable laws and regulations of Japan. For purposes of this paragraph, Japanese person means any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Residents of Hong Kong
The underwriters and each of their affiliates have not (1) offered or sold, and will not offer or sell, in Hong Kong, by means of any document, any shares of our common stock other than (a) to professional investors
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within the meaning of 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; and (2) issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere any advertisement, invitation or document relating to the shares of our common stock which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares of our common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance and any rules made under that Ordinance. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
Notice to Residents of Singapore
This document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares of our common stock may not be circulated or distributed, nor may 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 (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the Securities and Futures Act), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.
Where shares of our common stock are subscribed or purchased under Section 275 by a relevant person, which is:
(a) | a corporation (which is not an accredited investor) 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 is an accredited investor, |
shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares of our common stock under Section 275 except:
(1) | to an institutional investor or to a relevant person, or to any person pursuant to an offer that is made on terms that such rights or interest are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets; |
(2) | where no consideration is given for the transfer; or |
(3) | by operation of law. |
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The validity of the shares of common stock offered hereby will be passed upon for us by Latham & Watkins LLP, San Diego, California. Goodwin Procter LLP, New York, New York, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2011 and 2012, and for each of the two years in the period ended December 31, 2012, and for the period from July 13, 2005 (inception) to December 31, 2012, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 1 to the consolidated financial statements). We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLPs report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Upon completion of this offering, we will be required to file periodic reports, proxy statements and other information with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. You may read and copy this information at the Public Reference Room of the Securities and Exchange Commission, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet website that contains reports, proxy statements and other information about registrants, like us, that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov.
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CONATUS PHARMACEUTICALS INC.
Index to Consolidated Financial Statements
Page | ||||
F-2 | ||||
Consolidated Balance Sheets as of December 31, 2011 and 2012 |
F-3 | |||
F-4 | ||||
F-5 | ||||
F-7 | ||||
F-8 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Conatus Pharmaceuticals Inc.
We have audited the accompanying consolidated balance sheets of Conatus Pharmaceuticals Inc. as of December 31, 2011 and 2012, and the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders deficit, and cash flows for the years then ended and for the period from July 13, 2005 (inception) to December 31, 2012. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Conatus Pharmaceuticals Inc. at December 31, 2011 and 2012, and the consolidated results of its operations and its cash flows for the years then ended and for the period from July 13, 2005 (inception) to December 31, 2012, in conformity with U.S. generally accepted accounting principles.
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 financial statements, the Company has recurring losses from operations and has a net capital deficiency 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
San Diego, California
May 9, 2013
F-2
(a development stage company)
Consolidated Balance Sheets
December 31, | Pro Forma Stockholders Equity as of December 31, 2012 | |||||||||
2011 | 2012 | |||||||||
(unaudited) | ||||||||||
Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 3,072,839 | $ | 4,036,091 | ||||||
Short-term investments |
13,685,199 | 3,989,473 | ||||||||
Prepaid and other current assets |
165,333 | 76,184 | ||||||||
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Total current assets |
16,923,371 | 8,101,748 | ||||||||
Property and equipment, net |
21,114 | 29,604 | ||||||||
Other long-term assets |
14,395 | 14,395 | ||||||||
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Total assets |
$ | 16,958,880 | $ | 8,145,747 | ||||||
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Liabilities, convertible preferred stock and stockholders (deficit) equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ | 1,179,040 | $ | 1,087,346 | ||||||
Accrued compensation |
541,957 | 325,555 | ||||||||
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Total current liabilities |
1,720,997 | 1,412,901 | ||||||||
Convertible preferred stock warrant liability |
68,786 | 160,345 | ||||||||
Note payable |
1,000,000 | 1,000,000 | ||||||||
Series A Convertible Preferred Stock, $0.0001 par value; |
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44,827,538 shares authorized, 42,494,218 shares issued and outstanding at December 31, 2011 and 2012; liquidation preference of $31,870,664 at December 31, 2011 and 2012; no shares authorized, issued and outstanding, pro forma (unaudited) |
32,208,532 | 32,208,532 | ||||||||
Series B Convertible Preferred Stock, $0.0001 par value; |
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50,300,000 shares authorized, 36,417,224 shares issued and outstanding at December 31, 2011 and 2012; liquidation preference of $32,775,502 at December 31, 2011 and 2012; no shares authorized, issued and outstanding, pro forma (unaudited) |
31,699,840 | 31,699,840 | ||||||||
Stockholders (deficit) equity: |
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Common stock, $0.0001 par value; 120,000,000 shares authorized, 8,350,000 shares issued and outstanding at December 31, 2011 and 9,958,500 shares issued and 8,684,000 shares outstanding, excluding 1,274,500 shares subject to repurchase, at December 31, 2012; 200,000,000 shares authorized, shares issued and shares outstanding, pro forma (unaudited) |
835 | 868 | ||||||||
Additional paid-in capital |
322,623 | 470,219 | ||||||||
Accumulated other comprehensive income (loss) |
(4,463 | ) | 551 | |||||||
Deficit accumulated during the development stage |
(50,058,270 | ) | (58,807,509 | ) | ||||||
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Total stockholders (deficit) equity |
(49,739,275 | ) | (58,335,871 | ) | ||||||
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Total liabilities, convertible preferred stock and stockholders (deficit) equity |
$ | 16,958,880 | $ | 8,145,747 | ||||||
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See accompanying notes to consolidated financial statements.
F-3
(a development stage company)
Consolidated Statements of Operations and Comprehensive Loss
Year Ended December 31, | Period From July 13, 2005 (Inception) to December 31, 2012 |
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2011 | 2012 | |||||||||||
Operating expenses: |
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Research and development |
$ | 9,486,619 | $ | 5,528,106 | $ | 40,825,148 | ||||||
General and administrative |
2,874,507 | 3,086,479 | 18,116,592 | |||||||||
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Total operating expenses |
12,361,126 | 8,614,585 | 58,941,740 | |||||||||
Other income (expense): |
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Interest income |
28,274 | 25,547 | 1,358,750 | |||||||||
Interest expense |
(113,836 | ) | (70,000 | ) | (774,829 | ) | ||||||
Other income (expense) |
(4,439 | ) | 1,358 | 241,399 | ||||||||
Other financing income (expense) |
454,547 | (91,559 | ) | (691,089 | ) | |||||||
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Total other income (expense) |
364,546 | (134,654 | ) | 134,231 | ||||||||
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Net loss |
(11,996,580 | ) | (8,749,239 | ) | (58,807,509 | ) | ||||||
Other comprehensive (income) loss: |
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Net unrealized gains (losses) on short-term investments |
(4,463 | ) | 5,014 | 551 | ||||||||
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Comprehensive loss |
$ | (12,001,043 | ) | $ | (8,744,225 | ) | $ | (58,806,958 | ) | |||
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Net loss per share attributable to common stockholders, basic and diluted |
$ | (1.44 | ) | $ | (1.04 | ) | ||||||
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Weighted average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted |
8,346,134 | 8,389,885 | ||||||||||
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Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (Note 2) |
$ | |||||||||||
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Weighted average common shares outstanding used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (Note 2) |
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See accompanying notes to consolidated financial statements.
F-4
(a development stage company)
Consolidated Statements of Convertible Preferred Stock and Stockholders Deficit
Series A Convertible Preferred Stock |
Common Stock | Additional Paid-in Capital |
Accumulated Other Comprehensive Income (Loss) |
Deficit Accumulated During the Development Stage |
Total Stockholders Deficit |
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Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
Balance at July 13, 2005 (inception) |
| $ | | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||||
Issuance of common stock to founders at $0.001 per share for cash |
| | 6,000,000 | 600 | 5,400 | | | 6,000 | ||||||||||||||||||||||||||
Net loss and comprehensive loss |
| | | | | | (91,354 | ) | (91,354 | ) | ||||||||||||||||||||||||
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Balance at December 31, 2005 |
| | 6,000,000 | 600 | 5,400 | | (91,354 | ) | (85,354 | ) | ||||||||||||||||||||||||
Issuance of preferred stock at $0.75 per share, net of issuance costs of $174,012 and estimated fair value of tranche right of $0.04 per share in October and December 2006, for cash |
7,333,334 | 4,029,181 | | | | | | | ||||||||||||||||||||||||||
Issuance of preferred stock at $0.75 per share, in October and December, for conversion of notes payable and related accrued interest |
1,948,582 | 1,461,439 | | | | | | | ||||||||||||||||||||||||||
Issuance of preferred stock at $0.75 per share, in October and December, for share-based compensation in lieu of salaries |
878,969 | 659,224 | | | | | | | ||||||||||||||||||||||||||
Issuance of preferred stock at $0.75 per share, in October and December, for payment of license expense |
333,333 | 250,000 | | | | | | | ||||||||||||||||||||||||||
Issuance of common stock to founders at $0.03 per share for cash |
| | 1,500,000 | 150 | 44,850 | | | 45,000 | ||||||||||||||||||||||||||
Share-based compensation |
| | | | 796 | | | 796 | ||||||||||||||||||||||||||
Net loss and comprehensive loss |
| | | | | | (3,305,145 | ) | (3,305,145 | ) | ||||||||||||||||||||||||
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Balance at December 31, 2006 |
10,494,218 | 6,399,844 | 7,500,000 | 750 | 51,046 | | (3,396,499 | ) | (3,344,703 | ) | ||||||||||||||||||||||||
Issuance of preferred stock at $0.75 per share, net of issuance costs of $19,095 in May 2007 for cash |
29,333,334 | 21,980,905 | | | | | | | ||||||||||||||||||||||||||
Issuance of preferred stock at $0.75 per share in May for payment of license expense |
2,666,666 | 1,999,999 | | | | | | | ||||||||||||||||||||||||||
Reclassification of tranche right upon second closing of preferred stock |
| 1,827,784 | | | | | | | ||||||||||||||||||||||||||
Vesting of early exercise of employee stock options |
| | 246,875 | 25 | 2,564 | | | 2,589 | ||||||||||||||||||||||||||
Share-based compensation |
| | | | 2,900 | | | 2,900 | ||||||||||||||||||||||||||
Net loss |
| | | | | | (10,183,310 | ) | (10,183,310 | ) | ||||||||||||||||||||||||
Change in unrealized gains on investments |
| | | | | 46,989 | | 46,989 | ||||||||||||||||||||||||||
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Balance at December 31, 2007 |
42,494,218 | 32,208,532 | 7,746,875 | 775 | 56,510 | 46,989 | (13,579,809 | ) | (13,475,535 | ) | ||||||||||||||||||||||||
Vesting of early exercise of employee stock options |
259,167 | 26 | 6,848 | 6,874 | ||||||||||||||||||||||||||||||
Share-based compensation |
| | | | 24,831 | | | 24,831 | ||||||||||||||||||||||||||
Net loss |
| | | | | | (6,799,395 | ) | (6,799,395 | ) | ||||||||||||||||||||||||
Change in unrealized gains on investments |
(42,231 | ) | | (42,231 | ) | |||||||||||||||||||||||||||||
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Balance at December 31, 2008 |
42,494,218 | 32,208,532 | 8,006,042 | 801 | 88,189 | 4,758 | (20,379,204 | ) | (20,285,456 | ) |
[Continued on the next page]
F-5
Conatus Pharmaceuticals Inc.
(a development stage company)
Consolidated Statements of Convertible Preferred Stock and Stockholders Deficit (continued)
Series A Convertible Preferred Stock |
Series B Convertible Preferred Stock |
Common Stock | Additional Paid-in Capital |
Accumulated Other Comprehensive Income (Loss) |
Deficit Accumulated During the Development Stage |
Total Stockholders Deficit |
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Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2008 |
42,494,218 | $ | 32,208,532 | | $ | | 8,006,042 | $ | 801 | $ | 88,189 | $ | 4,758 | $ | (20,379,204) | $ | (20,285,456 | ) | ||||||||||||||||||||||||||
Vesting of early exercise of employee stock options |
| | | | 212,500 | 21 | 4,754 | | | 4,775 | ||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 30,059 | | | 30,059 | ||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | (6,979,099 | ) | (6,979,099 | ) | ||||||||||||||||||||||||||||||||
Change in unrealized gains on investments |
| | | | | | | (4,718 | ) | | (4,718 | ) | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2009 |
42,494,218 | 32,208,532 | | | 8,218,542 | 822 | 123,002 | 40 | (27,358,303 | ) | (27,234,439 | ) | ||||||||||||||||||||||||||||||||
Vesting of early exercise of employee stock options |
| | | | 115,625 | 11 | 3,675 | | | 3,686 | ||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 35,082 | | | 35,082 | ||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | (10,703,387 | ) | (10,703,387 | ) | ||||||||||||||||||||||||||||||||
Change in unrealized gains on investments |
| | | | | | | (40 | ) | | (40 | ) | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2010 |
42,494,218 | 32,208,532 | | | 8,334,167 | 833 | 161,759 | | (38,061,690 | ) | (37,899,098 | ) | ||||||||||||||||||||||||||||||||
Issuance of preferred stock at $0.90 per share, net of issuance costs of $1,075,662 in February and March 2011 for cash and conversion of note payable |
| | 36,417,224 | 31,699,840 | | | | | | | ||||||||||||||||||||||||||||||||||
Vesting of early exercise of employee stock options |
| | | | 15,833 | 2 | 1,174 | | | 1,176 | ||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 159,690 | | | 159,690 | ||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | (11,996,580 | ) | (11,996,580 | ) | ||||||||||||||||||||||||||||||||
Change in unrealized gains on investments |
| | | | | | | (4,463 | ) | | (4,463 | ) | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2011 |
42,494,218 | 32,208,532 | 36,417,224 | 31,699,840 | 8,350,000 | 835 | 322,623 | (4,463 | ) | (50,058,270) | (49,739,275 | ) | ||||||||||||||||||||||||||||||||
Vesting of early exercise of employee stock options |
| | | | 334,000 | 33 | 3,572 | | | 3,605 | ||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 144,024 | | | 144,024 | ||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | (8,749,239 | ) | (8,749,239 | ) | ||||||||||||||||||||||||||||||||
Change in unrealized gains on investments |
| | | | | | | 5,014 | | 5,014 | ||||||||||||||||||||||||||||||||||
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Balance at December 31, 2012 |
42,494,218 | $ | 32,208,532 | 36,417,224 | $ | 31,699,840 | 8,684,000 | $ | 868 | $ | 470,219 | $ | 551 | $ | (58,807,509) | $ | (58,335,871 | ) | ||||||||||||||||||||||||||
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See accompanying notes to consolidated financial statements.
F-6
(a development stage company)
Consolidated Statements of Cash Flows
Year Ended December 31, | Period From July 13, 2005 (Inception) to December 31, 2012 |
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2011 | 2012 | |||||||||||
Operating activities: |
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Net loss |
$ | (11,996,580 | ) | $ | (8,749,239 | ) | $ | (58,807,509 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
10,951 | 9,066 | 199,266 | |||||||||
Share-based compensation expense |
159,690 | 144,024 | 397,382 | |||||||||
Noncash other financing expense (income) |
(454,547 | ) | 91,559 | 1,184,198 | ||||||||
Acquisition of in-process research and development |
| | 1,250,000 | |||||||||
Share-based compensation in lieu of salaries |
| | 659,224 | |||||||||
Noncash license expense |
| | 2,249,999 | |||||||||
Amortization (accretion) of premium (discount) on investments |
282,673 | 171,810 | (121,616 | ) | ||||||||
Changes in operating assets and liabilities: |
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Prepaid and other current assets |
(68,107 | ) | 89,149 | (76,184 | ) | |||||||
Other assets |
102,239 | | (14,395 | ) | ||||||||
Accounts payable and accrued expenses |
175,670 | (91,694 | ) | 1,131,182 | ||||||||
Accrued compensation |
(307,561 | ) | (228,882 | ) | 313,075 | |||||||
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Net cash used in operating activities |
(12,095,572 | ) | (8,564,207 | ) | (51,635,378 | ) | ||||||
Investing activities: |
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Maturities of investments |
18,936,000 | 19,838,000 | 100,782,865 | |||||||||
Purchase of investments |
(32,908,335 | ) | (10,309,070 | ) | (104,650,171 | ) | ||||||
Cash paid to acquire in-process research and development |
| | (250,000 | ) | ||||||||
Capital expenditures |
(16,240 | ) | (17,556 | ) | (228,870 | ) | ||||||
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Net cash provided by (used in) investing activities |
(13,988,575 | ) | 9,511,374 | (4,346,176 | ) | |||||||
Financing activities: |
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Issuance of promissory notes |
| | 6,200,000 | |||||||||
Proceeds from exercise of warrants |
| | 234 | |||||||||
Issuance of preferred stock for cash, net of offering costs |
26,424,333 | | 53,731,226 | |||||||||
Issuance of common stock |
| 16,085 | 86,185 | |||||||||
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Net cash provided by financing activities |
26,424,333 | 16,085 | 60,017,645 | |||||||||
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Net increase in cash and cash equivalents |
340,186 | 963,252 | 4,036,091 | |||||||||
Cash and cash equivalents at beginning of period |
2,732,653 | 3,072,839 | | |||||||||
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Cash and cash equivalents at end of period |
$ | 3,072,839 | $ | 4,036,091 | $ | 4,036,091 | ||||||
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
$ | 70,000 | $ | 70,000 | $ | 169,556 | ||||||
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Supplemental schedule of non-cash investing and financing activities: |
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Conversion of notes payable for preferred stock |
$ | 5,275,507 | $ | | $ | 6,736,946 | ||||||
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Issuance of warrants in conjunction with debt |
$ | | $ | | $ | 1,735,431 | ||||||
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Issuance of note payable related to acquisition of in-process research and development |
$ | | $ | | $ | 1,000,000 | ||||||
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See accompanying notes to consolidated financial statements.
F-7
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Conatus Pharmaceuticals Inc. (the Company) was incorporated in the state of Delaware on July 13, 2005. The Company is a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease.
As of December 31, 2012, the Company has devoted substantially all of its efforts to product development, and has not realized revenues from its planned principal operations. Accordingly, the Company is considered to be in the development stage.
The Company has a limited operating history and the sales and income potential of the Companys business and market are unproven. The Company has experienced net losses since its inception, and, as of December 31, 2012, had a net capital deficiency of $58,335,871. The Company expects to continue to incur net losses for at least the next several years. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Companys cost structure. If the Company is unable to generate revenues adequate to support its cost structure, the Company may need to raise additional debt or equity financing. As of December 31, 2012, the Company had cash, cash equivalents, and investments of $8,025,564 and working capital of $6,688,847. The Company will require additional cash funding to continue to execute its strategic plan and fund operations through December 31, 2013. These factors raise substantial doubt about the Companys ability to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Companys assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
To fund further operations, the Company will need to raise additional capital. The Company may obtain additional financing in the future through the issuance of its common stock, through other equity or debt financings or through collaborations or partnerships with other companies. The Company may not be able to raise additional capital on acceptable terms, or at all, and any failure to raise capital as and when needed could have a material adverse effect on the results of operations, financial condition and the Companys ability to execute on its business plan.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiary, Idun Pharmaceuticals, Inc. (Idun). All intercompany balances and transactions have been eliminated in consolidation. In January 2013, the assets and rights related to the drug candidate emricasan were distributed from Idun to the Company. Following that distribution, Idun was spun off from the Company.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Unaudited Pro Forma Information
The unaudited pro forma consolidated balance sheet information as of December 31, 2012 (1) reflects the automatic conversion of all outstanding shares of convertible preferred stock into 78,911,442 shares of common
F-8
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
stock immediately prior to the closing of the initial public offering (IPO) contemplated by the Companys filing of its registration statement on Form S-1 with the Securities and Exchange Commission (SEC) in May 2013, and (2) gives effect to the issuance of shares of the Companys common stock as a result of the expected net exercise of the outstanding warrants to purchase Series A convertible preferred stock in connection with the Companys IPO, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), which warrants will terminate if unexercised prior to the completion of the IPO. The unaudited pro forma consolidated balance sheet assumes that the completion of the IPO had occurred as of December 31, 2012 and excludes shares of common stock issued in the IPO and any related net proceeds.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash. Additionally, the Company established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.
Short-Term Investments
The Company classifies its investments as available-for-sale and records such assets at estimated fair value in the consolidated balance sheet, with unrealized gains and losses, if any, reported as a component of other comprehensive income (loss) within the consolidated statements of operations and comprehensive loss and as a separate component of stockholders deficit. The Company invests its excess cash balances primarily in corporate debt securities and money market funds with strong credit ratings. Realized gains and losses are calculated on the specific identification method and recorded as interest income. There have been no realized gains and losses for the years ended December 31, 2011 and 2012, and for the period from July 13, 2005 (inception) to December 31, 2012.
At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the unrealized loss is other-than-temporary. The Company considers factors including: the significance of the decline in value compared to the cost basis, underlying factors contributing to a decline in the prices of securities in a single asset class, the length of time the market value of the security has been less than its cost basis, the securitys relative performance versus its peers, sector or asset class, expected market volatility and the market and economy in general. When the Company determines that a decline in the fair value below its cost basis is other-than-temporary, the Company recognizes an impairment loss in the year in which the other-than-temporary decline occurred. There have been no other-than-temporary declines in value of short-term investments for the years ended December 31, 2011 and 2012, and for the period from July 13, 2005 (inception) to December 31, 2012, as it is more likely than not the Company will hold the securities until maturity or a recovery of the cost basis.
Fair Value of Financial Instruments
The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items.
F-9
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment, which consists of furniture and fixtures, computers and office equipment and leasehold improvements, are stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include managements estimate of the assets ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Companys business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the assets fair value. The Company has not recognized any impairment losses through December 31, 2012.
Research and Development Expenses
All research and development costs are expensed as incurred.
Income Taxes
Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates. A valuation allowance is established to reduce a deferred tax asset to the amount that is expected more likely than not to be realized.
Stock-Based Compensation
Stock-based compensation for the Company includes amortization related to all stock option awards granted, based on the grant date fair value estimated in accordance with the applicable accounting guidance. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the following table. The expected life of options is based on the simplified method described in the SEC Staff Accounting Bulletin No. 107. The expected volatility of stock options is based upon the historical volatility of a number of publicly traded companies in similar stages of clinical development. The risk-free interest rate is based on the average yield of five- and seven-year U.S. Treasury Bills as of the valuation date.
Year Ended December 31, | ||||
2011 | 2012 | |||
Assumptions: |
||||
Risk-free interest rate |
1.18% 2.71% | 0.78% 1.41% | ||
Expected dividend yield |
0% | 0% | ||
Expected volatility |
70% - 72% | 69% - 70% | ||
Expected term (in years) |
6.1 | 6.1 |
The Company recorded stock-based compensation of $159,690, $144,024, and $397,382 for the years ended December 31, 2011 and 2012, and for the period from July 13, 2005 (inception) to December 31, 2012, respectively. Unrecognized compensation expense at December 31, 2012 was $37,103, which is expected to be recognized over a weighted-average vesting term of 1.2 years.
F-10
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
Convertible Preferred Stock Warrant Liability
The Company has issued freestanding warrants exercisable to purchase shares of its Series A convertible preferred stock. These warrants are classified as a liability in the accompanying consolidated balance sheets, as the terms for redemption of the underlying security are outside the Companys control. The warrants are recorded at fair value using the Black-Scholes option pricing model. The fair value of all warrants, except as noted below, is remeasured at each financial reporting date with any changes in fair value being recognized in other financing income (expense), a component of other income (expense), in the accompanying consolidated statements of operations. The Company will continue to remeasure the fair value of the warrant liability until: (i) exercise, which is expected to occur immediately prior to the completion of the IPO, (ii) expiration of the related warrant, or (iii) upon conversion of the convertible preferred stock underlying the security into common stock, at which time the warrants will be classified as a component of stockholders equity and will no longer be subject to remeasurement.
Comprehensive Loss
The Company is required to report all components of comprehensive loss, including net loss, in the consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources, including unrealized gains and losses on investments. Comprehensive gains (losses) have been reflected in the consolidated statements of operations and comprehensive loss for all periods presented.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating primarily in the United States.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Companys potentially dilutive securities which include convertible preferred stock, warrants and outstanding stock options under the stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Companys net loss position.
The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per shares because to do so would be anti-dilutive.
December 31, | ||||||||
2011 | 2012 | |||||||
Convertible preferred stock |
78,911,442 | 78,911,442 | ||||||
Warrants to purchase preferred stock |
2,333,320 | 2,333,320 | ||||||
Common stock options |
6,273,250 | 5,694,500 | ||||||
Common stock subject to repurchase |
| 1,274,500 | ||||||
|
|
|
|
|||||
Total |
87,518,012 | 88,213,762 | ||||||
|
|
|
|
F-11
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
Unaudited Pro Forma Net Loss Per Share
The following table summarizes the unaudited pro forma net loss per share attributable to common stockholders:
December 31, 2012 | ||||
Numerator |
||||
Net loss attributable to common stockholders |
$ | (8,749,239 | ) | |
Add: |
||||
Change in fair value of warrants |
91,559 | |||
|
|
|||
Pro forma net loss |
$ | (8,657,680 | ) | |
|
|
|||
Denominator |
||||
Weighted average common shares outstanding, basic and diluted |
8,389,885 | |||
Add: |
||||
Pro forma adjustments to reflect assumed conversion of preferred stock |
78,911,442 | |||
Pro forma adjustments to reflect assumed conversion of convertible preferred stock issued upon net exercise of warrants |
||||
|
|
|||
Shares used to compute pro forma net loss per share, basic and diluted |
||||
|
|
|||
Pro forma basic and diluted net loss per share attributable to common stockholders |
||||
|
|
Recently Issued Accounting Pronouncements
In May 2011, new authoritative guidance was issued regarding common fair value measurements and disclosure requirements in GAAP and International Financial Reporting Standards (IFRS). The new guidance clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable inputs. This guidance is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011. The Company adopted this standard effective January 1, 2012, and such adoption did not have an impact on the Companys financial position or results of operations.
In June 2011, a new accounting standard was issued which eliminates the current option to report other comprehensive income (loss) and its components in the statement of stockholders equity. The standard is intended to enhance comparability between entities that report under GAAP and those that report under IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an entitys equity. Under the new standard, a company can elect to present items of net income (loss) and other comprehensive income (loss) in one continuous statement, referred to as the statement of comprehensive income (loss), or in two separate, but consecutive, statements. The new guidance does not change items that constitute net income (loss) and other comprehensive income (loss) or when an item of other comprehensive income (loss) must be reclassified to net income (loss). The Company adopted this standard effective January 1, 2012, and such adoption did not have a material impact on the Companys consolidated results of operations, cash flows, or financial position.
F-12
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
3. Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as 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, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: |
Includes financial instruments for which quoted market prices for identical instruments are available in active markets. | |
Level 2: |
Includes financial instruments for which there are inputs other than quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transaction (less active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. | |
Level 3: |
Includes financial instruments for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including managements own assumptions. |
Below is a summary of assets and liabilities measured at fair value as of December 31, 2011 and 2012.
December 31, 2011 |
Fair Value Measurements Using | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||
Assets |
||||||||||||||||
Money market funds |
$ | 2,678,439 | $ | 2,678,439 | $ | | $ | | ||||||||
Municipal bonds |
355,000 | | 355,000 | | ||||||||||||
Corporate debt securities |
12,204,645 | | 12,204,645 | | ||||||||||||
U.S. Treasury securities |
500,315 | | 500,315 | | ||||||||||||
Debt securities in government sponsored entities |
625,239 | | 625,239 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 16,363,638 | $ | 2,678,439 | $ | 13,685,199 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Convertible preferred stock warrant liability |
$ | 68,786 | $ | | $ | | $ | 68,786 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 68,786 | $ | | $ | | $ | 68,786 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2012 |
Fair Value Measurements Using | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||
Assets |
||||||||||||||||
Money market funds |
$ | 3,874,153 | $ | 3,874,153 | $ | | $ | | ||||||||
Municipal bonds |
260,000 | | 260,000 | | ||||||||||||
Corporate debt securities |
3,729,473 | | 3,729,473 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 7,863,626 | $ | 3,874,153 | $ | 3,989,473 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Convertible preferred stock warrant liability |
$ | 160,345 | $ | | $ | | $ | 160,345 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | 160,345 | $ | | $ | | $ | 160,345 | ||||||||
|
|
|
|
|
|
|
|
F-13
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
The Companys short-term investments, consisting principally of debt securities and money market funds, are classified as available-for-sale, are stated at fair value and consist of Level 2 financial instruments in the fair value hierarchy. The Company determines the fair value of its debt security holdings based on pricing from a service provider. The service provider values the securities based on using market prices from a variety of industry-standard independent data providers. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs), such as, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.
The fair value of the convertible preferred stock warrant liability was determined based on Level 3 inputs and utilizing the Black-Scholes option pricing model using the assumptions noted in the following table.
Year Ended December 31, | ||||||||
2011 | 2012 | |||||||
Assumptions: |
||||||||
Risk-free interest rate |
1.89 | % | 1.78 | % | ||||
Expected dividend yield |
0 | % | 0 | % | ||||
Expected volatility |
70 | % | 70 | % | ||||
Expected term (in years) |
8.3 | 7.3 |
The following table presents activity for the convertible preferred stock warrant liability measured at fair value using significant unobservable Level 3 inputs during the years ended December 31, 2011 and 2012.
Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3) |
||||
Balance at January 1, 2011 |
$ | 1,734,544 | ||
Changes in fair value reflected as other financing income |
(1,665,758 | ) | ||
|
|
|||
Balance at December 31, 2011 |
68,786 | |||
Changes in fair value reflected as other financing expense |
91,559 | |||
|
|
|||
Balance at December 31, 2012 |
$ | 160,345 | ||
|
|
F-14
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
4. Investments
The Company invests its excess cash in money market funds and debt instruments of financial institutions, corporations, and municipal bonds. The following tables summarize the Companys short-term investments:
As of December 31, 2011 |
Maturity |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Estimated Fair Value |
|||||||||||||
Corporate debt securities |
1 or less | $ | 12,209,419 | $ | | $ | 4,774 | $ | 12,204,645 | |||||||||
Debt securities in government sponsored entities |
1 or less | 625,000 | 239 | | 625,239 | |||||||||||||
US Treasury securities |
1 or less | 500,243 | 72 | | 500,315 | |||||||||||||
Municipal bonds |
1 or less | 355,000 | | | 355,000 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 13,689,662 | $ | 311 | $ | 4,774 | $ | 13,685,199 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
As of December 31, 2012 |
Maturity |
Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Estimated Fair Value |
|||||||||||||
Corporate debt securities |
1 or less | $ | 3,728,922 | $ | 551 | $ | | $ | 3,729,473 | |||||||||
Municipal bonds |
1 or less | 260,000 | | | 260,000 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3,988,922 | $ | 551 | $ | | $ | 3,989,473 | ||||||||||
|
|
|
|
|
|
|
|
5. Property and Equipment
Property and equipment consist of the following at December 31:
2011 | 2012 | |||||||
Furniture and fixtures |
$ | 107,797 | $ | 112,876 | ||||
Computer and office equipment |
82,723 | 95,199 | ||||||
Leasehold improvements |
3,645 | 3,645 | ||||||
|
|
|
|
|||||
194,165 | 211,720 | |||||||
Less accumulated depreciation and amortization |
(173,051 | ) | (182,116 | ) | ||||
|
|
|
|
|||||
$ | 21,114 | $ | 29,604 | |||||
|
|
|
|
Depreciation expense related to property and equipment amounted to $10,951, $9,066, and $199,266 for the years ended December 31, 2011 and 2012, and for the period from July 13, 2005 (inception) to December 31, 2012, respectively.
6. Note Payable
In July 2010, the Company entered into a $1,000,000 promissory note payable to Pfizer Inc. The note bears interest at 7% per annum which is paid quarterly and matures on July 29, 2020. The note payable prohibits the Company from paying cash dividends and is subject to acceleration upon specified events of default as defined in the agreement including the failure to notify Pfizer of certain material adverse events.
7. Convertible Preferred Stock and Stockholders Equity (Deficit)
Common Stock
During 2005, the Company sold 6,000,000 shares of common stock to founders for approximately $6,000. During 2006, the Company sold 1,500,000 shares of common stock to founders for approximately $45,000, subject to certain restrictions that have since been released.
F-15
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
Convertible Preferred Stock
Between August 2005 and July 2006, the Company borrowed from certain officers and investors an aggregate principal amount of $1,200,000 under convertible promissory notes. The convertible promissory notes had an annual interest rate of 8% and a conversion premium on principal and accrued interest of 15%. The principal, accrued interest and conversion premium under the convertible promissory notes converted into shares of Series A convertible preferred stock (Series A Preferred Stock) in October 2006, in connection with the initial closing of the Series A Preferred Stock financing.
During 2006, the Company entered into agreements with the founding officers and several investors who collectively purchased 10,160,885 shares of Series A Preferred Stock at $0.75 per share for $5,500,000 in cash, the conversion of the bridge financing noted above, plus related accrued interest and conversion premium of $261,439, and the issuance of preferred stock to employees of approximately $659,224 for services (Initial Closing). Additionally, the Company issued 333,333 shares of the Series A Preferred Stock in satisfaction of its initial license payment to Roche Palo Alto LLC and F. Hoffman-La Roche Ltd. (collectively, Roche) (Note 8).
In May 2007, the Company closed the second round of its Series A Preferred Stock financing, providing the Company with $22,000,000 in gross proceeds from the issuance of an additional 29,333,334 shares of Series A Preferred Stock (Second Closing). Additionally, the Companys Board of Directors determined that the Company had obtained satisfactory completion of certain preclinical studies of its product candidate, which was licensed from Roche, which triggered an additional $3,500,000 payment in cash and $2,000,000, in the form of the issuance of an additional 2,666,666 shares of Series A Preferred Stock to Roche (Note 8).
The holders of the Series A Preferred Stock are entitled to receive noncumulative dividends at a rate of $0.06 per share per annum. The Series A Preferred Stock dividends are payable when and if declared by the Companys Board of Directors. As of December 31, 2012, the Companys Board of Directors has not declared any dividends. The Series A Preferred Stock dividends are payable in preference and in priority to any dividends on common stock.
The holders of the Series A Preferred Stock are entitled to receive liquidation preferences at the rate of $0.75 per share. Liquidation payments to the holders of Series A Preferred Stock have priority and are made in preference to any payments to the holders of common stock.
The shares of Series A Preferred Stock are convertible into an equal number of shares of common stock, at the option of the holder, subject to certain anti-dilution adjustments. Each share of Series A Preferred Stock is automatically converted into common stock immediately upon (i) the Companys sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, in which per share price is at least $2.70 (as adjusted), and the gross cash proceeds are at least $30,000,000 or (ii) the affirmative vote of more than 50% of the holders of the then-outstanding Series A Preferred Stock.
The holders of Series A Preferred Stock are entitled to one vote for each share of common stock into which such Series A Preferred Stock could then be converted; and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.
Included in the terms of the Series A Preferred Stock agreement were certain rights granted to the holders of the Series A Preferred Stock issued in the Initial Closing which obligated the Company to deliver additional shares of Series A Preferred Stock at a specified price in the future at the potential Second Closing based on the achievement of a milestone or at the option of the holders of the Series A Preferred Stock (the Tranche Right). The Series A Preferred Stock, based on its deemed liquidation terms, is classified outside of stockholders deficit. Accordingly, the Tranche Right to purchase additional shares was valued and classified as a liability in 2006 and 2007. The carrying value was adjusted at each reporting date for any material changes in its estimated
F-16
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
fair value. The estimated fair value was determined using a valuation model which considered the probability of achieving a milestone, if any, the entitys cost of capital, the estimated time period the Tranche Right would be outstanding, consideration received for the instrument with the Tranche Right, the number of shares to be issued to satisfy the Tranche Right, and at what price and any changes in the fair value of the underlying instrument to the Tranche Right. At December 31, 2006, the change in fair value of the Tranche Right was immaterial. In 2007, the change in fair value of the Tranche Right of $530,977 was recorded as other financing expense and the adjusted carrying value of the Tranche Right of $1,827,784 was reclassified to convertible preferred stock on the balance sheet upon the Second Closing in May 2007.
In February 2011, the Company closed the first round of its Series B convertible preferred stock (Series B Preferred Stock) financing, providing the Company with $20,000,000 in gross proceeds from the issuance of 22,222,223 shares of Series B Preferred Stock. Upon the first closing, 5,861,667 shares of Series B Preferred Stock were issued upon the conversion of convertible bridge notes and related accrued interest under the terms of the convertible bridge financing agreement. In March 2011, the Company completed an additional closing to a new investor of its Series B Preferred Stock financing, providing the Company with $7,500,000 in gross proceeds from the issuance of an additional 8,333,334 shares of Series B Preferred Stock.
The holders of the Series B Preferred Stock are entitled to receive noncumulative dividends at a rate of $0.072 per share per annum. The Series B Preferred Stock dividends are payable when and if declared by the Companys Board of Directors. As of December 31, 2012, the Companys Board of Directors has not declared any dividends. The Series B Preferred Stock dividends are payable in preference and in priority to any dividends on common stock and Series A Preferred Stock.
The holders of the Series B Preferred Stock are entitled to receive liquidation preferences at the rate of $0.90 per share. Liquidation payments to the holders of Series B Preferred Stock have priority and are made in preference to any payments to the holders of common stock and Series A Preferred Stock.
The shares of Series B Preferred Stock are convertible into an equal number of shares of common stock, at the option of the holder, subject to certain anti-dilution adjustments. Each share of Series B Preferred Stock is automatically converted into common stock immediately upon (i) the Companys sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, in which per share price is at least $2.70 (as adjusted), and the gross cash proceeds are at least $30,000,000 or (ii) the affirmative vote of more than 66.67% of the holders of the then-outstanding Series B Preferred Stock.
The holders of Series B Preferred Stock are entitled to one vote for each share of common stock into which such Series B Preferred Stock could then be converted; and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.
The Series B Preferred Stock, based on its deemed liquidation terms, is classified outside of stockholders deficit.
Warrants
The Company issued warrants to purchase a total of 2,333,320 shares of Series A Preferred Stock in conjunction with a convertible bridge financing in 2010. The warrants are exercisable for $0.01 per share for a term of 10 years. The Company accounts for the warrants as a liability as they are exercisable for shares of preferred stock that is classified outside of permanent equity. The convertible preferred stock warrant liability is required to be recorded at fair value at the grant date of the warrants and the carrying value adjusted at each reporting date. The Company determined the fair value of the two sets of warrants on the issuance date using the Black-Scholes method and the following assumptions: volatility of 70%-77%, risk-free interest rates of 2.59%-3.69%, expected life of ten years and expected dividend yield of 0%. The $1,735,197 initial value of the warrants
F-17
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
was recorded as a debt discount and convertible preferred stock warrant liability. The debt discount was amortized to other financing expense using the effective interest method over the term of the debt. The Company revalued the warrants at December 31, 2011 and 2012 and recorded the change in the value of the warrants of $1,665,758 as other financing income and $91,559 as other financing expense, respectively. No shares of Series A Preferred Stock have been issued pursuant to the warrants.
Stock Options
The Company adopted an Equity Incentive Plan (the Plan) in 2006 under which 8,250,000 shares of common stock were reserved for issuance to employees, nonemployee directors and consultants of the Company. The Plan provides for the grant of incentive stock options, nonstatutory stock options, rights to purchase restricted stock, stock appreciation rights, dividend equivalents, stock payments, and restricted stock units to eligible recipients. Recipients of incentive stock options shall be eligible to purchase shares of the Companys common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the Plan is ten years. The options generally vest 25% on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years. As of December 31, 2012, 97,000 options remain available for future grant under the Plan.
The following table summarizes stock option transactions for the Plan since the Companys inception:
Total Options | Weighted- Average Exercise Price |
|||||||
Balance at July 13, 2005 (inception) and December 31, 2005 |
| $ | | |||||
Granted |
625,000 | 0.01 | ||||||
Exercised |
(600,000 | ) | 0.01 | |||||
|
|
|||||||
Balance at December 31, 2006 |
25,000 | 0.01 | ||||||
Granted |
400,000 | 0.04 | ||||||
Exercised |
(250,000 | ) | 0.05 | |||||
|
|
|||||||
Balance at December 31, 2007 |
175,000 | 0.03 | ||||||
Granted |
1,025,250 | 0.15 | ||||||
Cancelled |
(50,000 | ) | 0.15 | |||||
|
|
|||||||
Balance at December 31, 2008 |
1,150,250 | 0.13 | ||||||
Granted |
247,500 | 0.15 | ||||||
|
|
|||||||
Balance at December 31, 2009 |
1,397,750 | 0.13 | ||||||
Cancelled |
(150,000 | ) | 0.15 | |||||
|
|
|||||||
Balance at December 31, 2010 |
1,247,750 | 0.13 | ||||||
Granted |
5,025,500 | 0.09 | ||||||
|
|
|||||||
Balance at December 31, 2011 |
6,273,250 | 0.10 | ||||||
Granted |
1,646,750 | 0.01 | ||||||
Exercised |
(1,608,500 | ) | 0.01 | |||||
Cancelled |
(617,000 | ) | 0.11 | |||||
|
|
|||||||
Balance at December 31, 2012 |
5,694,500 | 0.10 | ||||||
|
|
|||||||
Vested at December 31, 2012 |
4,057,281 | 0.12 | ||||||
|
|
The weighted-average fair value of options granted was $0.06 for the year ended December 31, 2011, $0.01 for the year ended December 31, 2012 and $0.05 for the period from inception to December 31, 2012. At December 31, 2012, there were options outstanding to purchase 5,694,500 shares and all of these shares were exercisable. The intrinsic value of options outstanding at December 31, 2012 was zero.
F-18
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
Unvested shares from the early exercise of options are subject to repurchase by the Company at the lower of the original issue price or fair value. Options granted under the Plan will vest according to the respective option agreement. There were 1,608,500 shares exercised during the year ended December 31, 2012 with 1,274,500 shares subject to repurchase at December 31, 2012.
The Company recorded a related liability totaling $12,480 at December 31, 2012, which is included in accrued expenses on the consolidated balance sheets.
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consists of the following at December 31, 2012:
Conversion of preferred stock |
78,911,442 | |||
Convertible preferred stock warrants |
2,333,320 | |||
Stock options issued and outstanding |
5,694,500 | |||
Authorized for future option grants |
97,000 | |||
|
|
|||
87,036,262 | ||||
|
|
8. License Agreements
In November 2006, the Company entered into a research, development and commercialization agreement with Roche, in which the Company obtained a sole and exclusive license to develop, make, use and sell a novel, clinical-stage product candidate. The Company intended to develop the product candidate for liver disease. An initial payment of $250,000 was made in November 2006, in the form of the issuance of 333,333 shares of Series A Preferred Stock. In 2007, the Companys Board of Directors determined that the preclinical studies were satisfactorily completed, and the Company was obligated to make another payment consisting of $3,500,000 in cash. In addition, an aggregate of $2,000,000 in payments were due under the agreement in 2011 and 2012 in the form of the issuance of an additional 2,666,666 shares of Series A Preferred Stock. In late 2011, the Company ceased clinical development of this product candidate and in early 2012 the rights to the product candidate reverted to Roche. The Company has no further obligations under the agreement.
In July 2010, the Company became party to a collaboration agreement with Abbott Laboratories (Abbott) regarding a cancer product under development and currently in human clinical trials. Abbott is responsible for clinical and commercial development and related costs. In the event of the successful development and commercialization of the cancer product, the Company would receive certain development milestone payments and a royalty on commercial sales. This collaboration agreement was included within the assets retained by Idun in its spin off by the Company (Note 12).
9. Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification 740-10, Accounting for Uncertainty in Income Tax. The impact of an uncertain income tax position is recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained. There are no unrecognized tax benefits included in the Companys consolidated balance sheets at December 31, 2011 or 2012, and therefore has not incurred any penalties or interest.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the federal and state jurisdictions where applicable. There are currently no pending income tax examinations. The Companys tax years for 2005 and
F-19
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
forward are subject to examination by the federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.
Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of the Companys net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. The Company does not expect this analysis to be completed within the next 12 months and, as a result, the Company does not expect that the unrecognized tax benefits will change within 12 months of this reporting date. Due to the existence of the valuation allowance, future changes in the Companys unrecognized tax benefits will not impact the Companys effective tax rate.
Significant components of the Companys deferred tax assets at December 31, 2011 and 2012, are shown below:
2011 | 2012 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryovers |
$ | 17,175,000 | $ | 20,722,000 | ||||
Research and development tax credits |
1,675,000 | 1,755,000 | ||||||
Intangibles |
1,696,000 | 1,466,000 | ||||||
Compensation |
88,000 | 101,000 | ||||||
Other |
39,000 | 35,000 | ||||||
|
|
|
|
|||||
Total gross deferred tax assets |
20,673,000 | 24,129,000 | ||||||
Less valuation allowance |
(20,673,000 | ) | (24,129,000 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | | ||||
|
|
|
|
A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2011 and 2012 is as follows:
2011 | 2012 | |||||||
Statutory rate |
34.00 | % | 34.00 | % | ||||
State tax, net of federal benefit |
5.83 | % | 5.83 | % | ||||
Valuation allowance |
(39.50 | )% | (39.59 | )% | ||||
Other |
(0.33 | )% | (0.24 | )% | ||||
|
|
|
|
|||||
Effective tax rate |
| % | | % | ||||
|
|
|
|
At December 31, 2012, the Company has federal and state net operating loss carryforwards of approximately $52,300,000 and $51,242,000, respectively. The federal and state loss carryforwards begin to expire in 2025 and 2015, respectively, unless previously utilized. The Company also has federal and state research credit carryforwards of approximately $1,263,000 and $745,000, respectively. The federal research credit carryforwards will begin expiring in 2026 unless previously utilized. The state research credit will carry forward indefinitely. The change in the valuation allowance is a decrease of $3,456,000, and $5,408,000, and an increase of $24,129,000 for the years ended December 31, 2011 and 2012, and for the period from July 13, 2005 (inception) to December 31, 2012, respectively.
The American Taxpayer Relief Act of 2012, which reinstated the United States federal research and development tax credit retroactively from January 1, 2012 through December 31, 2013, was not enacted into law until the first quarter of 2013. The law change will have no impact on the 2013 financial statements due to the valuation allowance placed against the Companys net deferred tax assets.
F-20
Conatus Pharmaceuticals Inc.
(a development stage company)
Notes to Consolidated Financial Statements
10. Employee Benefits
Effective December 4, 2006, the Company has a defined contribution 401(k) plan for its employees. Employees are eligible to participate in the plan beginning on the first day of the third month following date of hire. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation. Effective January 1, 2007, the Company instituted a safe harbor matching contribution program. Contributions to the matching program totaled $89,755, $107,564, and $537,708 for the years ended December 31, 2011 and 2012, and for the period from July 13, 2005 (inception) to December 31, 2012, respectively.
11. Commitments
The Company leases certain office space under a noncancelable operating lease with terms through June 30, 2013. The rent expense for 2011, 2012, and the period from July 13, 2005 (inception) to December 31, 2012, totaled $155,723, $152,448, and $1,219,955, respectively. Future minimum payments under the aforementioned noncancelable operating lease total $77,028.
In July 2010, the Company entered into a stock purchase agreement with Pfizer, pursuant to which the Company acquired all of the outstanding stock of Idun. Under the agreement, the Company may be required to make payments to Pfizer totaling $18.0 million upon the achievement of specified regulatory milestones.
12. Subsequent Events
In January 2013, the assets and rights related to emricasan were distributed by Idun to the Company for no consideration. Idun was then spun off, becoming an independent company, owned by the stockholders of the Company at that time. In conjunction with the spin-off, the Company contributed $500,000 to Idun to provide for its initial working capital requirements and entered into a transition services agreement to provide operating services to Idun.
F-21
Shares
Common Stock
PROSPECTUS
, 2013
Stifel
Piper Jaffray
JMP Securities
SunTrust Robinson Humphrey
Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus. When you make a decision about whether to invest in our common stock, you should not rely upon any information other than the information in this prospectus. Neither the delivery of this prospectus nor the sale of our common stock means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these shares of common stock in any circumstances under which the offer or solicitation is unlawful.
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and The NASDAQ Global Market listing fee.
Amount | ||||
Securities and Exchange Commission registration fee |
$ | * | ||
FINRA filing fee |
* | |||
The NASDAQ Global Market listing fee |
* | |||
Accountants fees and expenses |
* | |||
Legal fees and expenses |
* | |||
Blue Sky fees and expenses |
* | |||
Transfer Agents fees and expenses |
* | |||
Printing and engraving expenses |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total expenses |
$ | * | ||
|
|
* | To be provided by amendment. |
Item 14. Indemnification of Directors and Officers.
Section 102 of the General Corporation Law of the State of Delaware permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our certificate of incorporation provides that no director of the Registrant shall be personally liable to it or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the General Corporation Law of the State of Delaware provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation, or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise in related capacities against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to 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 other adjudicating court determines that, despite the adjudication of liability but in view of all of 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.
II-1
Our certificate of incorporation provides that we will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of us) by reason of the fact that he or she is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an Indemnitee), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Our certificate of incorporation provides that we will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of us to procure a judgment in our favor by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.
We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, or Securities Act, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding shares of capital stock issued by us since January 2010. Also included is the consideration received by us for such shares and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.
(a) | Issuances of Capital Stock and Warrants to Purchase Capital Stock |
1. | In March and October 2010, we issued and sold an aggregate of $5.0 million in principal amount of convertible promissory notes, or the 2010 notes, to existing investors. The 2010 notes and the approximately $275,507 of accrued interest thereon were subsequently converted into 5,861,667 shares of Series B convertible preferred stock in February 2011. In connection with the issuance of these notes, we issued warrants which are exercisable for an aggregate of 2,333,320 shares of Series A convertible preferred stock at an initial exercise price per share of $0.01, for consideration equal to $0.0001 per warrant share. We expect these warrants to be net exercised in connection with the completion of this offering, resulting in the |
II-2
issuance of an aggregate of shares of common stock assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this preliminary prospectus). If these warrants are not exercised prior to the completion of this offering, they will terminate. |
2. | In February and March 2011, we issued an aggregate of 36,417,224 shares of our Series B convertible preferred stock, including shares issuable upon conversion of the 2010 notes, to certain of our existing investors and new investors at a price per share of $0.90 for aggregate gross consideration of approximately $32.8 million. These shares of Series B convertible preferred stock will convert into 36,417,224 shares of our common stock immediately prior to the closing of this offering. |
No underwriters were involved in the foregoing sales of securities. The securities described in this section (a) of Item 15 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All purchasers of shares of convertible preferred stock described above represented to us in connection with their purchase that they were accredited investors and were acquiring the shares for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.
(b) | Grants and Exercise of Stock Options. From January 2010 through December 31, 2012, we granted stock options to purchase an aggregate of 8,153,000 shares of our common stock at a weighted average exercise price of $0.07 per share, to certain of our employees, consultants and directors in connection with services provided to us by such persons. Of these, options to purchase 2,458,500 shares of common stock have been exercised through December 31, 2012 for aggregate consideration of $35,185, at a weighted average exercise price of $0.01 per share. |
The stock options and the common stock issuable upon the exercise of such options as described in this section (b) of Item 15 were issued pursuant to written compensatory plans or arrangements with our employees and directors, in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 701 promulgated under the Securities Act or the exemption set forth in Section 4(2) under the Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.
All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. All certificates representing the issued shares of capital stock described in this Item 15 included appropriate legends setting forth that the securities had not been registered and the applicable restrictions on transfer.
II-3
Item 16. Exhibits and Financial Statement Schedules.
(a) | Exhibits. |
Exhibit |
Description of Exhibit | |
1.1* | Underwriting Agreement | |
2.1 | Distribution Agreement, dated January 10, 2013, by and between Idun Pharmaceuticals, Inc. and the Registrant | |
3.1 | Restated Certificate of Incorporation (currently in effect) | |
3.2 | Amended and Restated Bylaws (currently in effect) | |
3.3* | Form of Amended and Restated Certificate of Incorporation (to be effective immediately prior to the closing of this offering) | |
3.4* | Form of Amended and Restated Bylaws (to be effective immediately prior to the closing of this offering) | |
4.1* | Specimen stock certificate evidencing the shares of common stock | |
4.2 | First Amended and Restated Investor Rights Agreement, dated February 9, 2011 | |
4.3 | Form of Warrant issued to investors in the Registrants 2010 bridge financing | |
5.1* | Opinion of Latham & Watkins LLP | |
10.1* | Stock Purchase Agreement, dated July 29, 2010, by and between Pfizer Inc. and the Registrant | |
10.2* | Promissory Note, dated July 29, 2010, issued by the Registrant to Pfizer Inc. | |
10.3 | Office Lease Agreement, dated April 7, 2006, by and between EOP-Plaza at La Jolla, L.L.C. and the Registrant | |
10.4 | First Amendment to Office Lease Agreement, dated November 30, 2009, by and between EOP-Plaza at La Jolla, L.L.C., and the Registrant | |
10.5 | Second Amendment to Office Lease Agreement, dated May 2, 2011, by and between Pacifica Tower LLC, sucessor in interest to EOP-Plaza at La Jolla, L.L.C., and the Registrant | |
10.6 | Third Amendment to Office Lease Agreement, dated March 28, 2012, by and between Pacifica Tower LLC, sucessor in interest to EOP-Plaza at La Jolla, L.L.C., and the Registrant | |
10.7 | Sublicense Agreement, dated March 1, 2013, by and between the Registrant and Idun Pharmaceuticals, Inc. | |
10.8* | Form of Indemnity Agreement for Directors and Officers | |
10.9# | 2006 Equity Incentive Award Plan, as amended, and form of option agreements thereunder | |
10.10#* | 2013 Equity Incentive Plan and form of option agreement thereunder | |
10.11#* | 2013 Employee Stock Purchase Plan | |
10.12#* | Independent Director Compensation Policy | |
10.13# | Employment Agreement, dated December 17, 2008, by and between Steven J. Mento, Ph.D. and the Registrant | |
10.14# | Employment Agreement, dated December 17, 2008, by and between Alfred P. Spada, Ph.D. and the Registrant | |
10.15# | Employment Agreement, dated November 1, 2011, by and between Gary C. Burgess, M.B., Ch.B. M.Med. and the Registrant |
II-4
Exhibit |
Description of Exhibit | |
10.16#* | Employee Incentive Compensation Plan | |
23.1* | Consent of Ernst & Young LLP, independent registered public accounting firm | |
23.2* | Consent of Latham & Watkins LLP (included in Exhibit 5.1) | |
24.1 | Power of Attorney (included on signature page) |
* | To be filed by amendment. |
| Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. |
# | Indicates management contract or compensatory plan. |
(b) Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3) | For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
II-5
(4) | In a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on this day of , 2013.
CONATUS PHARMACEUTICALS INC. | ||
By: |
| |
Steven J. Mento, Ph.D. | ||
President and Chief Executive Officer |
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of Conatus Pharmaceuticals Inc., hereby severally constitute and appoint Steven J. Mento, Ph.D., and Charles J. Cashion, and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him or her and in his or her name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.
Signature |
Title |
Date | ||
Steven J. Mento, Ph.D. |
President, Chief Executive Officer and Director (principal executive officer) |
, 2013 | ||
Charles J. Cashion |
Senior Vice President, Finance, Chief Financial Officer and Secretary (principal financial and accounting officer) |
, 2013 | ||
David F. Hale |
Chairman of the Board of Directors | , 2013 | ||
William Gerber, M.D. |
Director | , 2013 | ||
Paul H. Klingenstein |
Director | , 2013 | ||
Louis Lacasse |
Director | , 2013 | ||
Shahzad Malik, M.D. |
Director | , 2013 | ||
Marc Perret |
Director | , 2013 | ||
James Scopa |
Director | , 2013 | ||
Harold Van Wart, Ph.D. |
Director | , 2013 |
Exhibit Index
Exhibit |
Description of Exhibit | |
1.1* | Underwriting Agreement | |
2.1 | Distribution Agreement, dated January 10, 2013, by and between Idun Pharmaceuticals, Inc. and the Registrant | |
3.1 | Restated Certificate of Incorporation (currently in effect) | |
3.2 | Amended and Restated Bylaws (currently in effect) | |
3.3* | Form of Amended and Restated Certificate of Incorporation (to be effective immediately prior to the closing of this offering) | |
3.4* | Form of Amended and Restated Bylaws (to be effective immediately prior to the closing of this offering) | |
4.1* | Specimen stock certificate evidencing the shares of common stock | |
4.2 | First Amended and Restated Investor Rights Agreement, dated February 9, 2011 | |
4.3 | Form of Warrant issued to investors in the Registrants 2010 bridge financing | |
5.1* | Opinion of Latham & Watkins LLP | |
10.1* | Stock Purchase Agreement, dated July 29, 2010, by and between Pfizer Inc. and the Registrant | |
10.2* | Promissory Note, dated July 29, 2010, issued by the Registrant to Pfizer Inc. | |
10.3 | Office Lease Agreement, dated April 7, 2006, by and between EOP-Plaza at La Jolla, L.L.C. and the Registrant | |
10.4 | First Amendment to Office Lease Agreement, dated November 30, 2009, by and between EOP-Plaza at La Jolla, L.L.C., and the Registrant | |
10.5 | Second Amendment to Office Lease Agreement, dated May 2, 2011, by and between Pacifica Tower LLC, sucessor in interest to EOP-Plaza at La Jolla, L.L.C., and the Registrant | |
10.6 | Third Amendment to Office Lease Agreement, dated March 28, 2012, by and between Pacifica Tower LLC, sucessor in interest to EOP-Plaza at La Jolla, L.L.C., and the Registrant | |
10.7 | Sublicense Agreement, dated March 1, 2013, by and between the Registrant and Idun Pharmaceuticals, Inc. | |
10.8* | Form of Indemnity Agreement for Directors and Officers | |
10.9# | 2006 Equity Incentive Award Plan, as amended, and form of option agreements thereunder | |
10.10#* | 2013 Equity Incentive Plan and form of option agreement thereunder | |
10.11#* | 2013 Employee Stock Purchase Plan | |
10.12#* | Independent Director Compensation Policy | |
10.13# | Employment Agreement, dated December 17, 2008, by and between Steven J. Mento, Ph.D. and the Registrant | |
10.14# | Employment Agreement, dated December 17, 2008, by and between Alfred P. Spada, Ph.D. and the Registrant | |
10.15# | Employment Agreement, dated November 1, 2011, by and between Gary C. Burgess, M.B., Ch.B. M.Med. and the Registrant |
Exhibit |
Description of Exhibit | |
10.16#* | Employee Incentive Compensation Plan | |
23.1* | Consent of Ernst & Young LLP, independent registered public accounting firm | |
23.2* | Consent of Latham & Watkins LLP (included in Exhibit 5.1) | |
24.1 | Power of Attorney (included on signature page) |
* | To be filed by amendment. |
| Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. |
# | Indicates management contract or compensatory plan. |
Exhibit 2.1
DISTRIBUTION AGREEMENT
FOR EMRICASAN ASSETS
by and between
CONATUS PHARMACEUTICALS INC.
and
IDUN PHARMACEUTICALS, INC.
January 10, 2013
DISTRIBUTION AGREEMENT
This Distribution Agreement (Agreement), dated as of January 10, 2013 (Effective Date), is by and between Conatus Pharmaceuticals Inc., a Delaware corporation (Conatus), and Idun Pharmaceuticals, Inc., a Delaware corporation (Idun).
W I T N E S S E T H
WHEREAS, Idun owns certain assets related to the conduct of the Business (as defined below); and
WHEREAS, Idun desires to convey, transfer, assign and deliver to Conatus, as a distribution with respect to the Idun stock held by Conatus, the assets of the Business and Conatus desires to acquire and accept delivery of the assets of the Business, upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the respective covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the following meanings. Any of such terms, unless the context otherwise requires, may be used in the singular or plural, depending upon the reference.
Books and Records shall mean all books and records of Idun relating primarily to the Business, including all non-clinical and clinical data of the Business.
Business shall mean the business of researching, developing, conducting clinical studies, seeking regulatory approval for and commercializing Emricasan.
Claim shall mean any charge, allegation, notice, civil, criminal or administrative claim, demand, complaint, cause of action, suit, Proceeding, arbitration, hearing or investigation.
Code shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder.
Contracts shall mean all agreements, contracts, leases, licenses, instruments, obligations and commitments to which Idun is a party or is bound relating primarily to the operation of the Business, including, but not limited to, those listed on Schedule 1.1 hereto.
Distributed Assets shall mean all of the assets, tangible and intangible, of Idun, wherever located, that are primarily used or primarily held for use by Idun in the conduct of the Business as of the Effective Date, including without limitation the following assets, which are listed on Schedule 1.1 hereto:
(a) all Contracts;
(b) all Equipment;
(c) all Inventory;
(d) all Books and Records;
(e) all Intellectual Property;
(f) all Goodwill; and
(g) all claims of Idun against third parties relating to the Distributed Assets, whether choate or inchoate, known or unknown, contingent or noncontingent;
provided, that in no event shall the Distributed Assets include the Excluded Assets.
Downstream License Agreements shall mean the following licenses granted by Idun to the named company: (a) Abbott Laboratories, dated December 23, 1998, as amended; (b) Biogen-IDEC (formerly Biogen, Inc.), dated August 1, 2003; and (c) Becton, Dickenson and Company, dated January 31, 2001, as amended.
Equipment shall mean all machinery, spare parts, and manufacturing and test equipment of Idun that are primarily used or primarily held for use in connection with the operation of the Business.
Emricasan shall mean the caspase inhibitor IDN-6556 (PF3491390) which is currently being developed under the name emricasan and all of its analogs, metabolites, prodrugs, salts, hydrates, solvates, optical isomers, polymorphs and formulations thereof.
Excluded Assets shall mean all assets of Idun of whatsoever nature not listed on Schedule 1.1 hereto and not to be acquired by Conatus hereunder, including without limitation:
(a) all cash (including petty cash), cash equivalents, bank accounts, deposits and similar accounts (whether maintained at a bank, savings and loan or other financial institution), marketable securities or any other cash deposits or marketable securities relating to the Business;
(b) all claims for refunds of taxes and other governmental charges or assessments paid by Idun and arising from or pertaining to periods, activities, operations or events relating to the Business occurring prior to the Effective Date;
(c) all of the Upstream License Agreements; and
(d) all of the Downstream License Agreements.
Excluded Liabilities shall mean all Liabilities of Idun other than the Assumed Liabilities, including without limitation, any and all Liabilities under the Upstream License Agreements and the Downstream License Agreements and any and all Liabilities of Idun for taxes other than those taxes that are reported on a consolidated or combined basis with Conatus.
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Goodwill shall mean the goodwill of the Business, including, without limitation, the exclusive right of Conatus to (i) represent itself as carrying on the Business in continuation of and in succession to Idun, and (ii) use any words indicating that the Business is so carried on, including, without limitation, all of Iduns right, title and interest in and to the name Emricasan or any variation of it.
Intellectual Property shall mean any Intellectual Property Rights owned by Idun prior to the Effective Date that are primarily used or primarily held for use in connection with the conduct of the Business, including, but not limited to, those listed on Schedule 1.1 hereto.
Intellectual Property Rights shall mean any or all of the following and all rights in, arising out of, or associated with: (a) all United States and foreign patents and utility models and applications therefor, including provisional applications and all reissues, divisions, re-examinations, renewals, extensions, continuations and continuations-in-part thereof; (b) all rights in inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know-how, technology, non-clinical, clinical and technical data; (c) all copyrightable material, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world including moral rights; (d) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all Goodwill associated therewith, and all applications, registrations, and renewals in connection therewith and all other rights corresponding thereto throughout the world including common law rights; and (e) all websites and domain names.
Inventory shall mean all inventory, raw materials, work in process, semi-finished goods and finished goods of Idun that are primarily used or primarily held for use in connection with the operation of the Business.
Liabilities shall mean any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, guaranty or endorsement of or by any person of any type, whether accrued, absolute, contingent, matured, unmatured or other.
Proceeding shall mean any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving any governmental entity or arbitrator.
Representative shall mean any officer, director, partner, manager, member, principal, attorney, agent, employee or other representative.
Third Party shall mean any person or entity other than (a) Conatus or Idun or (b) an Affiliate or Representative of Conatus or Idun.
Upstream License Agreements shall mean the following license agreements granted by the named institution to Idun: (a) Wistar Institute, dated July 5, 1994, as amended;
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(b) Arch Development corporation/The Regents of the University of Michigan dated March 28, 1994, as amended; (c) Thomas Jefferson University, dated July 25, 1995, as amended; (d) Thomas Jefferson University, dated November 13, 1997, as amended; (e) Dartmouth University, dated April 21, 1994, as amended; (f) Emory University, dated June 15th, 1998; (g) Washington University, dated February 21, 1994; (h) Washington University, dated February 21, 1994; and (i) Burnham Institute (formerly La Jolla Cancer Research Foundation), dated June 15, 1994, as amended.
1.2 Other Defined Terms. The following terms shall have the meanings defined for such terms in the Sections set forth below:
Term |
Section | |
Assumed Liabilities |
2.2 | |
Assumption of Liabilities |
3.2(a) | |
Conatus Indemnitee |
5.1(a) | |
Idun Indemnitee |
5.1(b) | |
Indemnitee |
5.1(c) | |
Indemnifying Party |
5.1(c) | |
IP Assignment Agreement |
3.1(a) | |
Litigation Costs |
5.1(a) | |
Losses |
5.1(a) | |
Transition Services Agreement |
3.1(b) |
ARTICLE II.
DISTRIBUTION OF ASSETS; ASSUMPTION OF LIABILITIES
2.1 Distribution of Assets. Upon the terms and subject to the conditions contained herein, Idun hereby conveys, transfers, assigns and delivers to Conatus, as a distribution with respect to the Idun stock held by Conatus, and Conatus hereby acquires and accepts from Idun, of all of Iduns right, title and interest, as of the Effective Date, in and to the Distributed Assets.
2.2 Assumption of Liabilities. Upon the terms and subject to the conditions contained herein, effective as of the Effective Date, Conatus shall assume and become responsible for any and all Liabilities relating to the Business or the Distributed Assets, whether arising out of occurrences prior to, at or after the Effective Date (the Assumed Liabilities), including without limitation: (a) any and all Liabilities under the Contracts constituting Distributed Assets; (b) any and all costs and expenses for prosecuting, maintaining, defending or enforcing the Intellectual Property; and (c) any and all Liabilities for intellectual property infringement or other claims, including without limitation product liability claims, relating to the Business or the Distributed Assets.
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ARTICLE III.
DELIVERABLES
3.1 Idun Deliverables. Idun shall execute and deliver to Conatus simultaneously with the execution of this Agreement:
(a) an IP Assignment Agreement in the form of Exhibit A attached hereto, conveying all of Iduns Intellectual Property included in the Distributed Assets (IP Assignment Agreement); and
(b) a transition services agreement in the form of Exhibit C attached hereto for Conatus provision of managerial, administrative and other specified services to Idun (Transition Services Agreement).
3.2 Conatus Deliverables. Conatus shall execute and deliver to Idun simultaneously with the Execution of this Agreement:
(a) an assumption of liabilities in the form of Exhibit B attached hereto, evidencing Conatus assumption of the Assumed Liabilities (the Assumption of Liabilities); and
(b) the Transition Services Agreement.
3.3 Form of Instruments. To the extent that a form of any document to be delivered hereunder is not attached as an exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Conatus and Idun.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 Idun Representations and Warranties. Idun hereby makes the following representations and warranties to Conatus as of the Effective Date:
(a) Idun is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; and
(b) Idun has the power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Idun pursuant to this Agreement and to carry out the transactions contemplated hereby or thereby. The execution, delivery and performance by Idun of this Agreement and each such other agreement, document and instrument to which Idun is a party have been duly authorized by all necessary action of Idun, and no other action on the part of Idun is required in connection therewith. This Agreement and each agreement, document and instrument executed and delivered by Idun pursuant to this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of Idun enforceable against Idun in accordance with their terms.
4.2 Conatus Representations and Warranties. Conatus hereby makes the following representations and warranties to Idun as of the Effective Date:
(a) Conatus is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; and
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(b) Conatus has the power and authority to enter into this Agreement and each agreement, document and instrument to be executed and delivered by Conatus pursuant to this Agreement and to carry out the transactions contemplated hereby or thereby. The execution, delivery and performance by Conatus of this Agreement and each such other agreement, document and instrument to which Conatus is a party have been duly authorized by all necessary action of Conatus, and no other action on the part of Conatus is required in connection therewith. This Agreement and each agreement, document and instrument executed and delivered by Conatus pursuant to this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of Conatus enforceable against Conatus in accordance with their terms.
4.3 No Implied Warranties. THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, HAS BEEN MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT, INCLUDING THE EXHIBITS AND SCHEDULES HERETO. EACH PARTY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE DISTRIBUTED ASSETS ARE PROVIDED AS-IS AND WITH ALL FAULTS.
ARTICLE V.
INDEMNIFICATION; LIMITATION OF LIABILITY
5.1 Indemnity.
(a) Indemnification by Idun. Idun shall indemnify and hold harmless Conatus and each of its Representatives (each a Conatus Indemnitee) from and against (i) any and all liabilities, losses and damages (Losses) finally awarded to a Third Party by a court of competent jurisdiction or agreed to in a settlement approved by Idun that result from any Claim made or brought against a Conatus Indemnitee by or on behalf of such Third Party, and (ii) subject to Section 5.1(c), any direct out-of-pocket costs and expenses (including reasonable attorneys fees) (Litigation Costs) incurred by a Conatus Indemnitee while investigating or conducting the defense of such Third Party Claim, in any such case (i) and (ii), solely to the extent such Claim is directly based on or directly arises out of (a) the material breach by Idun of any representation, warranty or covenant contained in this Agreement; or (b) the Excluded Liabilities; provided, that such indemnification right shall not apply to any Losses or Litigation Costs for which Conatus is obligated to indemnify Idun under Section 5.1(b).
(b) Indemnification by Conatus. Conatus shall indemnify and hold harmless Idun and each of its Representatives (each an Idun Indemnitee) from and against (i) any and all Losses finally awarded to a Third Party by a court of competent jurisdiction or agreed to in a settlement approved by Conatus that result from any Claim made or bought against an Idun
6
Indemnitee by or on behalf of such Third Party, and (ii) subject to Section 5.1(c), any Litigation Costs incurred by an Idun Indemnitee while investigating or conducting the defense of such Third Party Claim, in any such case (i) and (ii), solely to the extent such Claim is directly based on or directly arises out of (a) the material breach by Conatus of any representation, warranty or covenant contained in this Agreement; or (b) the Assumed Liabilities; provided, that such indemnification right shall not apply to any Losses or Litigation Costs for which Idun is obligated to indemnify Conatus under Section 5.1(a).
(c) Indemnification Procedures. Promptly after receipt by a party seeking indemnification under this Section 5.1 (an Indemnitee) of notice of any pending or threatened Claim brought by a Third Party against it, such Indemnitee shall give written notice to the party from whom the Indemnitee is entitled to seek indemnification pursuant to this Section 5.1 (the Indemnifying Party) of the commencement thereof; provided, that the failure so to notify the Indemnifying Party shall not relieve it of any liability that it may have to any Indemnitee hereunder, except to the extent the Indemnifying Party demonstrates that it is materially prejudiced thereby. The Indemnifying Party shall be entitled to participate in the defense of such Claim and, to the extent that it elects within seven (7) days of its receipt of notice of the Claim from the Indemnitee, to assume control of the defense and settlement of such Claim (unless (i) the Indemnifying Party is also a party to such proceeding and the Indemnifying Party has asserted a cross claim against the Indemnified Party or a court has otherwise determined that such that joint representation would be inappropriate, or (ii) the Indemnifying Party fails to provide reasonable assurance to the Indemnitee of its financial capacity to defend the Indemnitee in such Proceeding) with counsel reasonably satisfactory to the Indemnitee and, after notice from the Indemnifying Party to the Indemnitee of its election to assume the defense of such Claim, the Indemnifying Party shall not, as long as it diligently conducts such defense, be liable to the Indemnitee for any Litigation Costs subsequently incurred by the Indemnitee. No compromise or settlement of any Claim may be effected by the Indemnifying Party without the Indemnitees written consent, which consent shall not be unreasonably withheld or delayed; provided, no consent shall be required if (A) there is no finding or admission of any violation of Law or any violation of the rights of any person and no effect on any other claims that may be made against the Indemnitee, (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party, and (C) the Indemnitees rights under this Agreement are not restricted by such compromise or settlement.
5.2 Limitation of Liability. EXCEPT WITH RESPECT TO EACH PARTYS INDEMNIFICATION OBLIGATIONS UNDER SECTION 5.1 FOR THIRD PARTY CLAIMS, NEITHER PARTY WILL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT.
ARTICLE VI.
RIGHTS AND OBLIGATIONS SUBSEQUENT TO THE EFFECTIVE DATE
6.1 Further Assurances. Upon the terms and subject to the conditions contained herein, Conatus and Idun shall: (a) use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, (b) execute any documents,
7
instruments or conveyances of any kind that may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder, and (c) cooperate with each other in connection with the foregoing.
6.2 Consents to Assignment. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Contract or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a Third Party thereto, would constitute a default thereof or in any way materially adversely affect the rights or obligations of Conatus thereunder. With respect to any such Contract, Idun shall use all reasonable efforts, with Conatus reasonable cooperation, to obtain the consent of the other parties to such Contract for the assignment thereof to Conatus, or confirmation from such parties that such consent is not required; provided, that Idun shall not be required to make any payments or agree to any material undertakings in connection therewith. If such consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights thereunder so that Conatus would not receive all such rights, Idun shall cooperate with Conatus, in all reasonable respects, to provide to Conatus the benefits under any such Contract.
6.3 Sublicense under Thomas Jefferson Agreement. Within thirty (30) days after the Effective Date, the parties shall negotiate and enter into a sublicense agreement wherein Idun shall grant Conatus a sublicense to its right under (a) that certain Upstream License Agreement by and between Idun and Thomas Jefferson University dated July 25, 1995, as amended; and (b) that certain Upstream License Agreement by and between Idun and Thomas Jefferson University, dated November 13, 1997, as amended and Conatus shall agree to pay directly to Thomas Jefferson University the appropriate percentage of Net Sales of Emricasan until such time as specified in the aforementioned agreements.
6.4 Books and Records. Each party shall cooperate with and make available to the other party, during normal business hours, all Books and Records, information and Representatives that are necessary or useful in connection with any tax inquiry, audit, investigation or dispute, any litigation or investigation or any other matter requiring access to any such Books and Records, information or Representatives for any reasonable business purpose. The party requesting access to any such Books and Records, information or Representatives shall bear all of the out-of-pocket costs and expenses reasonably incurred in connection with providing access to such Books and Records, information or Representatives.
6.5 Tax Matters. The parties shall (i) each provide the other with such assistance as may reasonably be requested by either of them in connection with the preparation of any tax return, audit or other examination by any taxing authority or judicial or administrative proceedings relating to Liability for taxes, (ii) each retain and provide the other with any Books and Records or other information that may be relevant to such tax return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding or determination that affects any amount required to be shown on any tax return of the other for any period. Without limiting the generality of the foregoing, the parties shall each retain, until the applicable statutes of limitation (including any extensions) have expired, copies of all tax returns, supporting work schedules and other records or information that may be relevant to such tax returns for all tax periods or portions thereof
8
ending on or before the Effective Date and shall not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. Notwithstanding anything to the contrary herein, Conatus shall be responsible for any documentary and transfer taxes and any sales, use or other taxes imposed by reason of the transfer of the Distributed Assets provided hereunder and any deficiency, interest or penalty asserted with respect thereto, shall file in a timely manner all tax returns relating to such taxes and shall hold Idun harmless from same.
ARTICLE VII.
MISCELLANEOUS
7.1 Governing Law. This Agreement (including any claim or controversy arising out of or relating to this Agreement) shall be governed by the law of the State of California without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
7.2 Notices. Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (a) if delivered or sent by facsimile transmission, upon receipt, (b) if sent by reputable courier service guaranteeing overnight delivery, on the next business day, or (c) if sent by registered or certified mail, upon the sooner of the date on which receipt is acknowledged or the expiration of three (3) business days after deposit in United States post office facilities properly addressed with postage prepaid. All notices to a party will be sent to the addresses set forth below or to such other address or person as such party may designate by notice to each other party hereunder:
To Idun:
Idun Pharmaceuticals, Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
To Conatus:
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
Any notice given hereunder may be given on behalf of any party by its counsel or other authorized Representatives.
7.3 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties and their respective successors and permitted assigns.
7.4 Construction. Conatus and Idun have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
9
7.5 Severability. If any provision of this Agreement is declared invalid by a court of last resort or by any court or other governmental body from the decision of which an appeal is not taken within the time provided by law, then and in such event, this Agreement will be deemed to have been terminated only as to the portion thereof that relates to the provision invalidated by that decision and only in the relevant jurisdiction, but this Agreement, in all other respects and all other jurisdictions, will remain in force; provided, that if the provision so invalidated is essential to the Agreement as a whole, then the parties will negotiate in good faith to amend the terms hereof as nearly as practical to carry out the original intent of the parties.
7.6 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other party other than in connection with the sale or transfer by a party of all or substantially all of the assets to which this Agreement relates. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
7.7 Amendments. This Agreement may not be amended or modified, nor may compliance with any condition or covenant set forth herein be waived, except by a writing duly and validly executed by each party hereto, or in the case of a waiver, the party waiving compliance.
7.8 Entire Agreement. This Agreement, including the exhibits and schedules hereto, reflects the entire agreement of the parties with respect to the subject matter hereof and supersedes all previous written or oral negotiations, commitments and writings.
7.9 Execution in Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
***Signature Page Follows***
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, all as of the day and year first above written.
CONATUS PHARMACEUTICALS INC. | IDUN PHARMACEUTICALS, INC. | |||||||
By: |
|
By: |
| |||||
Name: | Steven J. Mento, Ph.D. | Name: | Steven J. Mento, Ph.D. | |||||
Title: | Chief Executive Officer | Title: | Chief Executive Officer |
TABLE OF CONTENTS
Page | ||||||
ARTICLE I. DEFINITIONS |
1 | |||||
1.1 |
Defined Terms |
1 | ||||
1.2 |
Other Defined Terms |
4 | ||||
ARTICLE II. DISTRIBUTION OF ASSETS; ASSUMPTION OF LIABILITIES |
4 | |||||
2.1 |
Distribution of Assets |
4 | ||||
2.2 |
Assumption of Liabilities |
4 | ||||
ARTICLE III. DELIVERABLES |
5 | |||||
3.1 |
Idun Deliverables |
5 | ||||
3.2 |
Conatus Deliverables |
5 | ||||
3.3 |
Form of Instruments |
5 | ||||
ARTICLE IV. REPRESENTATIONS AND WARRANTIES |
5 | |||||
4.1 |
Idun Representations and Warranties |
5 | ||||
4.2 |
Conatus Representations and Warranties |
5 | ||||
4.3 |
No Implied Warranties |
6 | ||||
ARTICLE V. INDEMNIFICATION; LIMITATION OF LIABILITY |
6 | |||||
5.1 |
Indemnity |
6 | ||||
5.2 |
Limitation of Liability |
7 | ||||
ARTICLE VI. RIGHTS AND OBLIGATIONS SUBSEQUENT TO THE EFFECTIVE DATE |
7 | |||||
6.1 |
Further Assurances |
7 | ||||
6.2 |
Consents to Assignment |
8 | ||||
6.3 |
Sublicense under Thomas Jefferson Agreement |
8 | ||||
6.4 |
Books and Records |
8 | ||||
6.5 |
Tax Matters |
8 | ||||
ARTICLE VII. MISCELLANEOUS |
9 | |||||
7.1 |
Governing Law |
9 | ||||
7.2 |
Notices |
9 | ||||
7.3 |
No Third-Party Beneficiaries |
9 | ||||
7.4 |
Construction |
9 | ||||
7.5 |
Severability |
10 | ||||
7.6 |
Assignment |
10 | ||||
7.7 |
Amendments |
10 | ||||
7.8 |
Entire Agreement |
10 | ||||
7.9 |
Execution in Counterparts |
10 |
SCHEDULE LIST |
||
Schedule 1.1: |
Distributed Assets | |
EXHIBIT LIST |
||
Exhibit A: |
Form of IP Assignment Agreement | |
Exhibit B: |
Form of Assumption of Liabilities | |
Exhibit C: |
Form of Transition Services Agreement |
ii
Schedule 1.1
Distributed Assets
(a) Intellectual Property.
1. | Patents. |
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Mexico |
Patent | 286788 | 3-Dec-16 | Idun Pharmaceuticals, Inc | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
Singapore |
Granted New Law Patent | 200903593.2 | 3-Dec-13 | Idun Pharmaceuticals, Inc | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
U.S.A. |
Small Entity Extended Patent | 7692038 | 6-Oct-13 | Idun Pharmaceuticals, Inc | 33272 | IDN6556 polymorphic forms | 10-Jul-28 | |||||||
Australia |
Patent | 2007330478 | 3-Dec-13 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
Canada |
Small Entity Granted Patent | 2669849 | 3-Dec-13 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
South Africa |
Patent | 2009/04693 | 3-Dec-13 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
South Korea |
New Law Patent | 1125932 | 5-Mar-15 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
Canada |
Large Entity Granted Patent | 2265853 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Germany |
European Patent | 69734718.4 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Europe |
Patent Application | 97943323.2 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | ||||||||
Spain |
European Patent | 97943323.2 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
France |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Great Britain |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Ireland |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Italy |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Japan |
Granted New Law Patent | 3830976 | 21-Jul-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 |
i
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Japan |
Patent-exam.req.on/after01Apr2004 | 4166252 | 8-Aug-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6200969 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | ||||||||
U.S.A. |
Small Entity Patent | 6528506 | 4-Sep-14 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6531467 | 11-Sep-14 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6610683 | 26-Feb-15 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6693096 | 17-Aug-15 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 5939460 | Idun Pharmaceuticals, Inc | 426 | NADPH (composition) | 8-Jul-16 | ||||||||
U.S.A. |
Small Entity Patent | 5990137 | Idun Pharmaceuticals, Inc | 426 | NADPH (method) | 8-Jul-16 | ||||||||
Europe |
Patent Application | 97942441.3 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 12-Sep-17 | ||||||||
U.S.A. |
Small Entity Patent | 5869519 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 16-Dec-16 | ||||||||
U.S.A. |
Small Entity Patent | 5877197 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 16-Dec-16 | ||||||||
U.S.A. |
Small Entity Patent | 6489353 | 3-Jun-14 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 16-Dec-16 | |||||||
Australia |
Patent | 724639 | 18-Sep-13 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 18-Sep-17 | |||||||
Canada |
Large Entity Granted Patent | 2265912 | 18-Sep-13 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 18-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 5965703 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 20-Sep-16 | ||||||||
U.S.A. |
Small Entity Patent | 6504022 | 7-Jul-14 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 20-Sep-16 | |||||||
U.S.A. |
Small Entity Patent | 6824991 | 30-May-16 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 20-Sep-16 | |||||||
Australia |
Patent | 738381 | 5-Jun-13 | Idun Pharmaceuticals, Inc | 430 | Microplate screen | 5-Jun-18 | |||||||
U.S.A. |
Small Entity Patent | 6270980 | 7-Feb-13 | Idun Pharmaceuticals, Inc | 430 | Microplate screen | 5-Jun-17 | |||||||
U.S.A. |
Small Entity Patent | 6518032 | 11-Aug-14 | Idun Pharmaceuticals, Inc | 430 | Microplate screen | 5-Jun-17 | |||||||
Austria |
European Patent - New Law | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Belgium |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Canada |
Large Entity Granted Patent | 2336474 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 |
ii
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Switzerland |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
China |
Granted Patent | 99810019.6 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Germany |
European Patent | 69934405 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Germany |
European Patent | 69941440.7 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Denmark |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Europe |
Patent Application | 6125650.9 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | ||||||||
Europe |
Patent Application | 99932211.8 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | ||||||||
Spain |
European Patent | 6125650.9 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Spain |
European Patent | 99932211.8 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Finland |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Finland |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
France |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
France |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Great Britain |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Great Britain |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Greece |
European Patent | 3060632 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Hong Kong |
Granted New Law Patent | 1036616 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Ireland |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Ireland |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 |
iii
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Israel |
Patent | 140554 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Italy |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Italy |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
India |
Patent | 251878 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Japan |
Patent-exam.req.on/after01Apr2004 | 3815968 | 16-Jun-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
South Korea |
New Law Patent | 804432 | 12-Feb-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Luxembourg |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Mexico |
Patent | 254407 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Netherlands |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Netherlands |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Portugal |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Sweden |
European Patent | 6125650.9 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Singapore |
Granted New Law Patent | 200007544 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
U.S.A. |
Small Entity Patent | 6197750 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | ||||||||
U.S.A. |
Small Entity Patent | 6544951 | 8-Oct-14 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | |||||||
U.S.A. |
Small Entity Patent | 7053056 | 30-Nov-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | |||||||
U.S.A. |
Small Entity Patent | 7183260 | 27-Aug-14 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | |||||||
South Africa |
PCT Patent | 2001/00023 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Australia |
Patent | 752339 | 1-Jul-13 | Idun Pharmaceuticals, Inc. | 442 | IDN6556 and related compounds composition | 1-Jul-19 |
iv
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Denmark |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc. | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Sweden |
European Patent | 99932211.8 | 1-Jul-13 | Idun Pharmaceuticals, Inc. | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
U.S.A. |
Small Entity Patent | 6391575 | 21-Nov-13 | Idun Pharmaceuticals, Inc | 443 | method of id casp inhib | 5-Mar-19 | |||||||
USA |
Large Entity Patent | 6790989 | 14-Sep-15 | Idun Pharmaceuticals, Inc | 457 | IDN6556 sulfonamide composition | Feb-21 (ADD to CPA) | |||||||
U.S.A. |
Small Entity Patent | 6762045 | 13-Jan-16 | Idun Pharmaceuticals, Inc | 468 | membrane csp activity | 20-Nov-20 |
v
2. | Trademarks. |
Emricasan
3. | Copyrights. |
None.
(b) Contracts.
None.
(c) Equipment.
None.
(d) Inventory.
None.
(e) Books and Records. All books and records of Idun relating primarily to the Business, including all product designs and customer and supplier lists of the Business.
(f) Claims Related to the Distributed Assets. All claims of Idun against third parties relating to the Distributed Assets, whether choate or inchoate, known or unknown, contingent or noncontingent.
vi
EXHIBIT A
IP ASSIGNMENT AGREEMENT
This IP Assignment Agreement (the Assignment), dated as of January 10, 2013, is by and between Idun Pharmaceuticals, Inc., a Delaware corporation (Idun), and Conatus Pharmaceuticals Inc., a Delaware corporation (Conatus).
RECITALS
WHEREAS, Idun and Conatus have entered into that certain Distribution Agreement, dated as of January 10, 2013 (the Agreement); and
WHEREAS, under the terms of the Agreement, Idun has agreed to, among other things, convey, transfer, assign and deliver to Conatus, as a distribution with respect to the Idun stock held by Conatus, all of Iduns right, title and interest in, to and under the Intellectual Property (as such term is defined in the Agreement), including the intellectual property rights set forth on Schedule A and the Goodwill (as such term is defined in the Agreement) related thereto.
ASSIGNMENT
NOW, THEREFORE, Idun does hereby convey, transfer, assign and deliver to Conatus, as a distribution with respect to the Idun stock held by Conatus, all of Iduns right, title and interest in, to and under the Intellectual Property, including the intellectual property rights set forth on Schedule A and the Goodwill related thereto. Idun hereby covenants and agrees that, at any time and from time to time forthwith upon the written request of Conatus, Idun will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances and assurances as may reasonably be required by Conatus in order to convey, transfer, assign and deliver to Conatus, as a distribution with respect to the Idun stock held by Conatus, and vest in Conatus title to all of the Intellectual Property, including the intellectual property rights set forth on Schedule A and the Goodwill related thereto.
This Assignment is subject in all respects to the terms and conditions of the Agreement and is intended only to document the assignment of the Intellectual Property, including the intellectual property rights set forth on Schedule A and the Goodwill related thereto. Nothing contained in this Assignment shall be deemed to supersede any of the obligations, agreements, representations, covenants or warranties of Idun and Conatus contained in the Agreement.
This Assignment shall be construed and interpreted according to the laws of the State of California, applicable to contracts to be wholly performed within the State of California.
This Assignment may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Assignment by facsimile or e-mail shall be effective as delivery of a manually executed counterpart of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this IP Assignment Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, all as of the day and year first above written.
i
CONATUS PHARMACEUTICALS INC. | IDUN PHARMACEUTICALS, INC. | |||||||
By: |
|
By: |
| |||||
Name: | Steven J. Mento, Ph.D. | Name: | Steven J. Mento, Ph.D. | |||||
Title: | Chief Executive Officer | Title: | Chief Executive Officer |
ii
SCHEDULE A
TO IP ASSIGNMENT AGREEMENT
1. | Patents. |
Country name |
Type name |
Patent / Design number |
Current renewal date |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Mexico |
Patent | 286788 | 3-Dec-16 | Idun Pharmaceuticals, Inc | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
Singapore |
Granted New Law Patent | 200903593.2 | 3-Dec-13 | Idun Pharmaceuticals, Inc | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
10U.S.A. |
Small Entity Extended Patent | 7692038 | 6-Oct-13 | Idun Pharmaceuticals, Inc | 33272 | IDN6556 polymorphic forms | 10-Jul-28 | |||||||
Australia |
Patent | 2007330478 | 3-Dec-13 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
Canada |
Small Entity Granted Patent | 2669849 | 3-Dec-13 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
South Africa |
Patent | 2009/04693 | 3-Dec-13 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
South Korea |
New Law Patent | 1125932 | 5-Mar-15 | Idun Pharmaceuticals, Inc. | 33272 | IDN6556 polymorphic forms | 3-Dec-27 | |||||||
Canada |
Large Entity Granted Patent | 2265853 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Germany |
European Patent | 69734718.4 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Europe |
Patent Application | 97943323.2 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | ||||||||
Spain |
European Patent | 97943323.2 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
France |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Great Britain |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Ireland |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Italy |
European Patent | 929311 | 12-Sep-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Japan |
Granted New Law Patent | 3830976 | 21-Jul-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
Japan |
Patent-exam.req.on/after01Apr2004 | 4166252 | 8-Aug-13 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6200969 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 |
i
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
U.S.A. |
Small Entity Patent | 6528506 | 4-Sep-14 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6531467 | 11-Sep-14 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6610683 | 26-Feb-15 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 6693096 | 17-Aug-15 | Idun Pharmaceuticals, Inc | 425 | Methods of treating inflammation, cell survival, infection | 12-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 5939460 | Idun Pharmaceuticals, Inc | 426 | NADPH (composition) | 8-Jul-16 | ||||||||
U.S.A. |
Small Entity Patent | 5990137 | Idun Pharmaceuticals, Inc | 426 | NADPH (method) | 8-Jul-16 | ||||||||
Europe |
Patent Application | 97942441.3 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 12-Sep-17 | ||||||||
U.S.A. |
Small Entity Patent | 5869519 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 16-Dec-16 | ||||||||
U.S.A. |
Small Entity Patent | 5877197 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 16-Dec-16 | ||||||||
U.S.A. |
Small Entity Patent | 6489353 | 3-Jun-14 | Idun Pharmaceuticals, Inc | 427 | Indole dipeptide csp Inhbitors | 16-Dec-16 | |||||||
Australia |
Patent | 724639 | 18-Sep-13 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 18-Sep-17 | |||||||
Canada |
Large Entity Granted Patent | 2265912 | 18-Sep-13 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 18-Sep-17 | |||||||
U.S.A. |
Small Entity Patent | 5965703 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 20-Sep-16 | ||||||||
U.S.A. |
Small Entity Patent | 6504022 | 7-Jul-14 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 20-Sep-16 | |||||||
U.S.A. |
Small Entity Patent | 6824991 | 30-May-16 | Idun Pharmaceuticals, Inc | 428 | BAD polypeptide | 20-Sep-16 | |||||||
Australia |
Patent | 738381 | 5-Jun-13 | Idun Pharmaceuticals, Inc | 430 | Microplate screen | 5-Jun-18 | |||||||
U.S.A. |
Small Entity Patent | 6270980 | 7-Feb-13 | Idun Pharmaceuticals, Inc | 430 | Microplate screen | 5-Jun-17 | |||||||
U.S.A. |
Small Entity Patent | 6518032 | 11-Aug-14 | Idun Pharmaceuticals, Inc | 430 | Microplate screen | 5-Jun-17 | |||||||
Austria |
European Patent New Law | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Belgium |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Canada |
Large Entity Granted Patent | 2336474 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Switzerland |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
China |
Granted Patent | 99810019.6 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 |
ii
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
Germany |
European Patent | 69934405 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Germany |
European Patent | 69941440.7 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Denmark |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Europe |
Patent Application | 6125650.9 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | ||||||||
Europe |
Patent Application | 99932211.8 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | ||||||||
Spain |
European Patent | 6125650.9 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Spain |
European Patent | 99932211.8 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Finland |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Finland |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
France |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
France |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Great Britain |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Great Britain |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Greece |
European Patent | 3060632 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Hong Kong |
Granted New Law Patent | 1036616 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Ireland |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Ireland |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Israel |
Patent | 140554 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Italy |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Italy |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 |
iii
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
India |
Patent | 251878 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Japan |
Patent-exam.req.on/after01Apr2004 | 3815968 | 16-Jun-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
South Korea |
New Law Patent | 804432 | 12-Feb-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Luxembourg |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Mexico |
Patent | 254407 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Netherlands |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Netherlands |
European Patent | 1754475 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Portugal |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Sweden |
European Patent | 6125650.9 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Singapore |
Granted New Law Patent | 200007544 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
U.S.A. |
Small Entity Patent | 6197750 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | ||||||||
U.S.A. |
Small Entity Patent | 6544951 | 8-Oct-14 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | |||||||
U.S.A. |
Small Entity Patent | 7053056 | 30-Nov-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | |||||||
U.S.A. |
Small Entity Patent | 7183260 | 27-Aug-14 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 22-Oct-18 | |||||||
South Africa |
PCT Patent | 2001/00023 | 1-Jul-13 | Idun Pharmaceuticals, Inc | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Australia |
Patent | 752339 | 1-Jul-13 | Idun Pharmaceuticals, Inc. | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Denmark |
European Patent | 1091930 | 1-Jul-13 | Idun Pharmaceuticals, Inc. | 442 | IDN6556 and related compounds composition | 1-Jul-19 | |||||||
Sweden |
European Patent | 99932211.8 | 1-Jul-13 | Idun Pharmaceuticals, Inc. | 442 | IDN6556 and related compounds composition | 1-Jul-19 |
iv
Country name |
Type name |
Patent / Design number |
Current |
Proprietor |
Clients reference |
Description |
Expiry | |||||||
U.S.A. |
Small Entity Patent | 6391575 | 21-Nov-13 | Idun Pharmaceuticals, Inc | 443 | method of id casp inhib | 5-Mar-19 | |||||||
USA |
Large Entity Patent | 6790989 | 14-Sep-15 | Idun Pharmaceuticals, Inc | 457 | IDN6556 sulfonamide composition | Feb-21 (ADD to CPA) | |||||||
U.S.A. |
Small Entity Patent | 6762045 | 13-Jan-16 | Idun Pharmaceuticals, Inc | 468 | membrane csp activity | 20-Nov-20 |
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2. | Trademarks. |
Emricasan
vi
3. | Copyrights. |
None.
vii
EXHIBIT B
ASSUMPTION OF LIABILITIES
For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Conatus Pharmaceuticals Inc., a Delaware corporation (Conatus), does hereby assume and become fully responsible for the Assumed Liabilities as such term is defined in that certain Distribution Agreement, dated as of January 10, 2013, by and between Conatus and Idun Pharmaceuticals, Inc., a Delaware corporation (Idun). Conatus hereby covenants and agrees that, at any time and from time to time forthwith upon the written request of Idun, Conatus will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances and assurances as may reasonably be required by Idun in order to transfer, assign, convey and deliver unto and vest in Conatus all liabilities, obligations, responsibilities and commitments comprising the Assumed Liabilities, and to release Idun therefrom in full.
IN WITNESS WHEREOF, Conatus has caused this Assumption of Liabilities to be duly executed on its behalf, by its officers thereunto duly authorized, all as of January 10, 2013.
CONATUS PHARMACEUTICALS INC. | ||
By: |
| |
Name: | Steven J. Mento, Ph.D. | |
Title: | Chief Executive Officer |
EXHIBIT C
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (TSA), dated as of January 10, 2013 (Effective Date), is by and between Idun Pharmaceuticals, Inc., a Delaware corporation (Idun), and Conatus Pharmaceuticals Inc., a Delaware corporation (Conatus).
RECITALS
WHEREAS, Idun and Conatus have simultaneously herewith entered into that certain Distribution Agreement (the Agreement); and
WHEREAS, under the terms of the Agreement, Conatus has agreed to, among other things, provide certain managerial and administrative services to Idun to assist Idun in the conduct of its business pertaining to the Excluded Assets;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
SERVICES
Section 1.01. Services.
(a) Conatus hereby agrees to provide to Idun the services set forth on Schedule A-1 (the Services) unless Idun advises Conatus reasonably in advance of the date that the performance of any of the Services is not needed by Idun.
(b) Conatus shall provide the Services in a workmanlike manner and in accordance with industry practice. Conatus shall have the sole authority to hire and terminate the services of all employees and consultants, as it deems necessary or advisable to perform its obligations under this TSA. Conatus shall have the obligation to pay all salaries and employee benefit expenses to the employees and consultants it engages in connection with this TSA.
Section 1.02. Expenses. Conatus shall be entitled to all reasonable, allocable, and allowable costs, including direct costs, overhead and general and administrative expenses (but without profit or fee) in accordance with its disclosed practice (collectively, the Service Costs). As necessary, Conatus shall invoice Idun for the Services at such rates as are agreed upon in advance by the parties from time to time. Properly documented invoices are due and payable within forty-five (45) calendar days of the invoice date. Payment shall be made in immediately available U.S. Dollars via wire transfer or check. A late fee for late payment of an invoice for Service Costs shall be assessed at the amount of one percent (1%) per month or the maximum amount permitted by law, whichever is less. Idun shall have the right to audit the books and records of Conatus related to services provided under this TSA, such audit to be limited to verification of invoiced amounts and any necessary adjustments thereto, and performed by Conatus independent accounting firm at Idun expense, during normal business hours and upon reasonable prior notice (but no more frequently than annually).
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Section 1.03. Work Products and Related Expenses. Any data, research, analysis, discoveries, ideas, concepts, designs, devices, drawings, materials, developments, processes, procedures, trade secrets, Proprietary Information, know-how, improvements and work or intellectual property rights (altogether, Work Product) that is discovered or made or acquired by or on behalf of Conatus (including its employees and consultants) in connection with the provision of Services shall be the sole property of Idun. Conatus hereby assigns all right, title and interest to any such Work Products (including all rights to sue for infringement, including past infringement) to Idun. Conatus hereby agrees to sign all necessary papers and do all lawful acts reasonably requisite in connection with the prosecution and assignment of each and every patent application related to any such Work Products, without further compensation, but at the expense of Idun or its successors and assigns.
ARTICLE 2
CONFIDENTIALITY
Section 2.01. Nondisclosure. Except as otherwise provided in this TSA, each party (the Receiving Party) shall hold in confidence using at least the same degree of care that it uses to protect its own confidential information of like importance, but not less than reasonable care, shall not use except for the purposes expressly permitted under this TSA, and shall not disclose to any third party (except as expressly permitted by this TSA) any nonpublic business or technical information that is disclosed to it by the other party (the Disclosing Party) orally or in a tangible form and is marked Confidential, orally designated as confidential, or due to the circumstances surrounding the disclosure would reasonably be construed as confidential (Proprietary Information). All Work Product shall be deemed to be the Proprietary Information of Idun. Proprietary Information of a party shall not include:
(a) Information which at the time of disclosure under this TSA is published or otherwise generally known or available to the public;
(b) Information which, after disclosure by the Disclosing Party under this TSA, is published or becomes generally known or available to the public through no fault of the Receiving Party;
(c) Information which the Receiving Party can document by contemporaneous written records was in its possession at the time of disclosure and was not acquired directly or indirectly from the Disclosing Party;
(d) Information which was independently developed by the Receiving Party outside of the scope of this TSA and without any use of the Disclosing Partys Proprietary Information; or
(e) Information which becomes known to the Receiving Party, without restriction, from a source (other than the Disclosing Party) rightfully in possession of the information and under no confidentiality or fiduciary obligation not to make the disclosure.
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Section 2.02. Exceptions. If the Receiving Party becomes compelled by a court of competent jurisdiction to disclose any Proprietary Information, the Receiving Party will provide the Disclosing Party with prompt written notice so that the Disclosing Party may seek a protective order or other appropriate remedy. If such a protective order or other remedy is not obtained or if compliance with the provisions hereof is waived by the Disclosing Party, the Receiving Party will furnish only that portion of the Proprietary Information that is legally required and will exercise all reasonable business efforts to secure confidential treatment of such Proprietary Information.
ARTICLE 3
TERM AND TERMINATION
Section 3.01. Term. The initial term of this TSA shall commence as of the Effective Date and unless terminated earlier pursuant to this Article 3, shall continue in full force and effect until December 31, 2013. This TSA shall automatically renew for successive periods of one (1) year unless terminated (i) by either party with ninety (90) days prior written notice to the other party, or (ii) earlier pursuant to this Article 3. Upon any termination of this TSA, Idun shall promptly pay any Service Costs then owed to Conatus.
Section 3.02. Termination By Either Party.
(a) For Cause.
(i) Breach. In the event of a material breach of this TSA, the non-breaching party shall be entitled to terminate this TSA by written notice to the breaching party, if such breach is not cured within thirty (30) days after written notice is given to the breaching party, specifying the breach.
(ii) Cessation of Business; Insolvency; If either party (i) terminates or suspends its business activities; (ii) admits in writing its inability to pay its debts as they mature; or (iii) becomes insolvent, is dissolved or liquidated, makes an assignment for the benefit of creditors, files or has filed against it a petition in bankruptcy, reorganization, dissolution or liquidation or similar action filed by or against it, is adjudicated as bankrupt, or has a receiver appointed for its business, then the affected party shall promptly notify the unaffected party in writing that such event has occurred. If any event as specified in the previous sentence is not cured, or an acceptable plan for such cure is not proposed, within sixty (60) days after written notice from the unaffected party specifying the nature of the event, the unaffected party shall have the right to terminate this TSA, unless prevented to do so by law, by giving written notice of termination to the affected party.
(b) For Convenience. Idun may terminate this TSA, without cause, upon providing Conatus at least three (3) months prior written notice of its intent to do so.
Section 3.03. Survival.
(a) Termination of this TSA for any reason shall not release either party hereto from any liability which at the time of such termination has already accrued to the other party. In addition, any and all Service Costs accrued hereunder shall immediately become due and payable.
(b) Section 1.03 and Articles 2, 3 and 4 shall survive any expiration or termination of this TSA.
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ARTICLE 4
MISCELLANEOUS
Section 4.01 Governing Law. This TSA (including any claim or controversy arising out of or relating to this TSA) shall be governed by the law of the State of California without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
Section 4.02 Notices. Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (a) if delivered or sent by facsimile transmission, upon receipt, (b) if sent by reputable courier service guaranteeing overnight delivery, on the next business day, or (c) if sent by registered or certified mail, upon the sooner of the date on which receipt is acknowledged or the expiration of three (3) business days after deposit in United States post office facilities properly addressed with postage prepaid. All notices to a party will be sent to the addresses set forth below or to such other address or person as such party may designate by notice to each other party hereunder:
To Idun:
Idun Pharmaceuticals, Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
To Conatus:
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
Any notice given hereunder may be given on behalf of any party by its counsel or other authorized Representatives.
Section 4.03 No Third-Party Beneficiaries. This TSA shall not confer any rights or remedies upon any person other than the parties and their respective successors and permitted assigns.
Section 4.04 Construction. Conatus and Idun have participated jointly in the negotiation and drafting of this TSA. In the event an ambiguity or question of intent or interpretation arises, this TSA shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this TSA.
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Section 4.05 Severability. If any provision of this Agreement is declared invalid by a court of last resort or by any court or other governmental body from the decision of which an appeal is not taken within the time provided by law, then and in such event, this Agreement will be deemed to have been terminated only as to the portion thereof that relates to the provision invalidated by that decision and only in the relevant jurisdiction, but this Agreement, in all other respects and all other jurisdictions, will remain in force; provided, that if the provision so invalidated is essential to the Agreement as a whole, then the parties will negotiate in good faith to amend the terms hereof as nearly as practical to carry out the original intent of the parties.
Section 4.06 Assignment. Neither this TSA nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other party other than in connection with the sale or transfer by a party of all or substantially all of the assets to which this TSA relates. Subject to the foregoing, this TSA shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
Section 4.07 Amendments. This TSA may not be amended or modified, nor may compliance with any condition or covenant set forth herein be waived, except by a writing duly and validly executed by each party hereto, or in the case of a waiver, the party waiving compliance.
Section 4.08 Injunctive Relief. It is understood and agreed that, notwithstanding any other provision of this TSA, either partys breach of confidentiality obligations or provisions relating to intellectual property rights will cause irreparable damage for which recovery of money damages would be inadequate, and that the other party will therefore be entitled to seek timely injunctive relief to protect such partys rights under this TSA, in addition to any and all remedies available at law.
Section 4.09 Independent Contractors. The relationship of the parties hereto is that of independent contractors. Neither party hereto is an agent, partner or joint venturer of the other for any purpose and neither shall have the right to create, assume or incur any expense, liability or obligation on behalf of the other.
Section 4.10 Compliance with Laws. This TSA and the performance allowed hereunder shall be carried out in strict compliance with all applicable foreign, federal, state and local laws, regulations, rules and orders
Section 4.11 Entire Agreement. This TSA and the Agreement, including the exhibits and schedules hereto and thereto, reflects the entire agreement of the parties with respect to the subject matter hereof and supersedes all previous written or oral negotiations, commitments and writings.
Section 4.12 Execution in Counterparts. For the convenience of the parties and to facilitate execution, this TSA may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
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IN WITNESS WHEREOF, this TSA has been duly executed on behalf of the parties as of the Effective Date.
Conatus Pharmaceuticals Inc. | ||
By: |
| |
Name: | Steven J. Mento, Ph.D. | |
Title: | Chief Executive Officer | |
Idun Pharmaceuticals, Inc. | ||
By: |
| |
Name: | Steven J. Mento, Ph.D. | |
Title: | Chief Executive Officer |
SCHEDULE A-1
TO TRANSITION SERVICES AGREEMENT
SERVICES
Accounting
Technology license administration
Intellectual property maintenance
Any other services requested by Idun and agreed to by Conatus from time to time.
Exhibit 3.1
CONATUS PHARMACEUTICALS INC.
RESTATED CERTIFICATE OF INCORPORATION
Conatus Pharmaceuticals Inc., a corporation organized and existing under and by virtue of the Delaware General Corporation Law, hereby certifies as follows:
The name of this corporation is Conatus Pharmaceuticals, Inc. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on July 13, 2005.
The Restated Certificate of Incorporation in the form of Exhibit A attached hereto has been duly adopted in accordance with the provisions of Sections 242, 245, and 228 of the General Corporation Law of the State of Delaware (Delaware Corporate Law), and prompt written notice will be duly given pursuant to Section 228 of Delaware Corporate Law.
The text of the Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as set forth in Exhibit A attached hereto.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed this 10th day of January, 2013.
Conatus Pharmaceuticals Inc. | ||
By: | /s/ Steven J. Mento, Ph.D. | |
Steven J. Mento, Ph.D., | ||
President and CEO |
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EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
CONATUS PHARMACEUTICALS INC.
FIRST
The name of this corporation is Conatus Pharmaceuticals Inc. (the Company).
SECOND
The address of the Companys registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle 19808. The name of its registered agent at such address is Corporation Service Company.
THIRD
The purpose of this corporation is to engage in the lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
FOURTH
A. The aggregate number of shares that the Company shall have authority to issue is Two Hundred Fifteen Million One Hundred Twenty-Seven Thousand Five Hundred Thirty-Eight (215,127,538), divided into One Hundred Twenty Million (120,000,000) shares of Common Stock each with the par value of $0.0001 per share, and Ninety-Five Million One Hundred Twenty-Seven Thousand Five Hundred Thirty-Eight (95,127,538) shares of Preferred Stock each with the par value of $0.0001 per share, of which Forty-Four Million Eight Hundred Twenty-Seven Thousand Five Hundred Thirty-Eight (44,827,538) shares are designated Series A Preferred and Fifty Million Three Hundred Thousand (50,300,000) shares are designated Series B Preferred. As used herein, Preferred Stock shall refer collectively to shares of Series A Preferred and shares of Series B Preferred.
B. The rights, preferences, and privileges of the Preferred Stock are as follows:
1. Dividends.
(a) Treatment of Preferred. The holder of each then outstanding share of Series A Preferred shall be entitled to receive dividends at a rate of $0.06 per share per annum (as adjusted for all stock splits, stock dividends, combinations, reclassifications, recapitalizations and reorganizations with respect to such shares), and the holder of each then outstanding share of Series B Preferred shall be entitled to receive dividends at a rate of $0.072 per share per annum (as adjusted for all stock splits, stock dividends,
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combinations, reclassifications, recapitalizations and reorganizations with respect to such shares), in each case, out of any assets at the time legally available therefor, when, as and if declared by the Companys Board of Directors (the Board of Directors), prior and in preference to any dividend on the Common Stock. The foregoing dividend entitlement for each outstanding share of Series A Preferred and Series B Preferred shall be reduced by any prior or contemporaneous Sister Company Distributions (as hereinafter defined) paid per share with respect to the corresponding shares of Sister Company Series A Preferred (as hereinafter defined) or Sister Company Series B Preferred (as hereinafter defined), respectively (as adjusted for all stock splits, stock dividends, consolidations, recapitalizations and reorganizations with respect to such shares). No Distributions (as defined below) other than those payable solely in Common Stock shall be paid on any Common Stock unless and until (i) the aforementioned dividend is paid on each outstanding share of Preferred Stock, and (ii) a dividend is paid with respect to all outstanding shares of Preferred Stock in an amount equal to or greater than the aggregate amount of dividends which would be payable with respect to such shares of Preferred Stock if, immediately prior to such dividend payment on Common Stock, such shares of Preferred Stock had been converted into Common Stock. The Board of Directors is under no obligation to declare dividends, no rights shall accrue to the holders of Preferred Stock if dividends are not declared, and any dividends shall be noncumulative and shall not be payable if not paid from year to year. The Company shall make no Distribution (as defined below) to the holders of shares of Common Stock except in accordance with this Section 1(a).
(b) Distribution. Distribution means the transfer of cash or property without consideration, whether by way of dividend or otherwise, or the purchase of shares of the Company (other than (i) in connection with the repurchase of shares of Common Stock issued to or held by employees, consultants, officers and directors at a price not greater than the amount paid by such persons for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase or (ii) through the exercise of any right of first refusal held by the Company) for cash or property. Sister Company Distribution means the transfer of cash or property without consideration, whether by way of dividend or otherwise, or the purchase of shares of the Sister Company (as hereinafter defined) (other than (i) in connection with the repurchase of shares of Sister Company Common Stock issued to or held by employees, consultants, officers and directors at a price not greater than the amount paid by such persons for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase or (ii) through the exercise of any right of first refusal held by the Sister Company) for cash or property by the Sister Company. Notwithstanding the foregoing or anything herein to the contrary, (i) the Spin-off (as hereinafter defined) shall not constitute a Distribution or Sister Company Distribution and (ii) no Distribution or Sister Company Distribution shall be deemed to have occurred prior the effective date of this Restated Certificate of Incorporation.
(c) Consent to Certain Repurchases. As authorized by Section 402.5(c) of the General Corporation Law of California, Sections 502 and 503 of the General Corporation Law of California, to the extent otherwise applicable, shall not apply with respect to Distributions made by the Company in connection with the repurchase of shares of Common Stock issued to or held by employees, consultants, officers and directors at a price not greater than the amount paid by such person for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, which agreements were authorized by the approval of the Board of Directors.
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2. Liquidation Rights.
(a) Liquidation Preference. In the event of any Liquidation (as defined below), preferential distributions shall be made in the following manner:
(i) The holders of the Series B Preferred then outstanding shall be entitled to be paid out of the Proceeds (as defined below) of such Liquidation before any payment of Proceeds shall be made to the holders of Series A Preferred or Common Stock by reason of their ownership thereof, an amount per share for each share of Series B Preferred held by them equal to the sum of the Series B Liquidation Preference (as hereinafter defined) plus any dividends declared but unpaid thereon, less any Sister Company Series B Preference Payment (as hereinafter defined). Series B Liquidation Preference shall mean, with respect to a share of Series B Preferred, $0.90 per share (as adjusted for all stock splits, stock dividends, combinations, reclassifications, recapitalizations and reorganizations with respect to such shares). Sister Company Series B Preference Payment shall mean, with respect to a share of this Companys Series B Preferred, the amount of Sister Company Proceeds (as hereinafter defined) actually paid per share with respect to a corresponding share of Sister Company Series B Preferred (as adjusted for all stock splits, stock dividends, combinations, reclassifications, recapitalizations and reorganizations with respect to such shares) prior to or contemporaneously with (including if in a related transaction to) the applicable Liquidation. As of the effective date of this Restated Certificate of Incorporation, no Series B Liquidation Preference shall be deemed to have been paid with respect to this Companys Series B Preferred or the Sister Company Series B Preferred. If upon the Liquidation, the Proceeds available for distribution to the holders of the Series B Preferred are insufficient to permit the payment to such holders of the full amounts specified in this Section 2(a)(i), then the Proceeds available for distribution shall be distributed with equal priority and pro rata among the holders of the Series B Preferred in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 2(a)(i). Proceeds shall include all cash, securities and other property payable to the Company or its stockholders at the closing of the Liquidation or at any time thereafter, including but not limited to earnout payments, escrow amounts or other contingent payments actually received by the Company or its stockholders (net of any retained liabilities associated with such Liquidation, as determined in good faith by the Board of Directors). Sister Company Proceeds shall mean Proceeds mutatis mutandis for the Sister Company and a Sister Company Liquidation.
(ii) After payment to the holders of Series B Preferred of the full preferential amounts specified in Section 2(a)(i) above, the holders of the Series A Preferred then outstanding shall be entitled to be paid out of the Proceeds of such Liquidation before any payment of Proceeds shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share for each share of Series A Preferred held by them equal to the sum of the Series A Liquidation Preference (as hereinafter defined) plus any dividends declared but unpaid thereon, less any Sister Company Series A Preference Payment (as hereinafter defined). Series A Liquidation Preference shall mean, with respect to a share of Series A Preferred, $0.75 per share (as adjusted for all stock splits, stock dividends, combinations, reclassifications, recapitalizations and reorganizations with respect to such shares). Sister Company Series A
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Preference Payment shall mean, with respect to a share of this Companys Series A Preferred, the amount of Sister Company Proceeds actually paid per share with respect to a corresponding share of Sister Company Series A Preferred (as adjusted for all stock splits, stock dividends, combinations, reclassifications, recapitalizations and reorganizations with respect to such shares) prior to or contemporaneously with (including if in a related transaction to) the applicable Liquidation. As of the effective date of this Restated Certificate of Incorporation, no Series A Liquidation Preference shall be deemed to have been paid with respect to this Companys Series A Preferred or the Sister Company Series A Preferred. If upon the Liquidation, the Proceeds available for distribution to the holders of the Series A Preferred are insufficient to permit the payment to such holders of the full amounts specified in this Section 2(a)(ii), then the Proceeds available for distribution shall be distributed with equal priority and pro rata among the holders of the Series A Preferred in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 2(a)(ii).
(b) Remaining Assets. After the payment to the holders of Preferred Stock of the full preferential amounts specified in Section 2(a) above, the remaining Proceeds available for distribution by the Company shall be distributed with equal priority and pro rata among the holders of the Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Price (as defined below) immediately prior to such Liquidation of the Company; provided, however, that if the aggregate amount which the holders of Series A Preferred are entitled to receive under Sections 2(a) and 2(b), together with any Sister Company Series A Preference Payment, shall exceed the Series A Maximum Participation Amount, each holder of Series A Preferred shall be entitled to receive upon such Liquidation of the Company the greater of (i) such amounts under Sections 2(a) and 2(b) as are equal to the Series A Maximum Participation Amount (when taking into account the Sister Company Series A Preference Payment) and (ii) the amount such holder would have received if such holder had converted his, her or its shares of Series A Preferred into Common Stock immediately prior to such Liquidation of the Company; and if the aggregate amount which the holders of Series B Preferred are entitled to receive under Sections 2(a) and 2(b), together with any Sister Company Series B Preference Payment, shall exceed the Series B Maximum Participation Amount, each holder of Series B Preferred shall be entitled to receive upon such Liquidation of the Company the greater of (i) such amounts under Sections 2(a) and 2(b) as are equal to the Series B Maximum Participation Amount (after taking into account the Sister Company Series B Preference Payment) and (ii) the amount such holder would have received if such holder had converted his, her or its shares of Series B Preferred into Common Stock immediately prior to such Liquidation of the Company. The Series A Maximum Participation Amount shall mean $1.50 per share (subject to appropriate adjustment in the event of a stock split, stock dividend, combination, reclassification, recapitalization or reorganization affecting the Series A Preferred). The Series B Maximum Participation Amount shall mean $1.80 per share (subject to appropriate adjustment in the event of a stock split, stock dividend, combination, reclassification, recapitalization or reorganization affecting the Series B Preferred). The aggregate amount which a holder of a share of Series A Preferred is entitled to receive under Sections 2(a) and 2(b) is hereinafter referred to as the Series A Liquidation Amount. The aggregate amount which a holder of a share of Series B Preferred is entitled to receive under Sections 2(a) and 2(b) is hereinafter referred to as the Series B Liquidation Amount.
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(c) Liquidation. A Liquidation shall be deemed to be occasioned by, or to include, (i) the liquidation, dissolution or winding up of the Company; (ii) any consolidation or merger of the Company or any other corporate reorganization (other than for the sole purpose of changing the domicile of the Company or a sale of shares by the Company solely for bona fide equity financing purposes) in which (A) the Companys stockholders constituted immediately prior to such transaction hold less than 50% of the voting power of the surviving or acquiring entity or (B) any transaction or series of related transactions to which the Company is a party in which greater than 50% of the voting power of the Company is transferred; or (iii) a sale, license, conveyance or other disposition of all or substantially all of the assets of the Company. Sister Company Liquidation shall mean a Liquidation mutatis mutandis for the Sister Company. Notwithstanding the foregoing or anything herein to the contrary, the Spin-off shall not constitute a Liquidation or Sister Company Liquidation, and no Liquidation or Sister Company Liquidation shall be deemed to have occurred prior the effective date of this Restated Certificate of Incorporation. In the event of a deemed Liquidation pursuant to clause (iii) in this Section 2(c) above, the Series A Liquidation Amount and the Series B Liquidation Amount shall not be paid at the closing of such Liquidation, but shall be paid in accordance with the following: If the Company does not effect a dissolution of the Company under the Delaware General Corporation Law within forty-five (45) days after such deemed Liquidation, then (A) the Company shall deliver a written notice to each holder of Preferred Stock no later than the forty-fifth (45th) day after the deemed Liquidation advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of Preferred Stock, and (B) if the holders of at least a majority of the voting power of the then outstanding shares of Preferred Stock so request in a written instrument delivered to the Company not later than sixty (60) days after such deemed Liquidation, the Company shall use the Proceeds received by the Company for such deemed Liquidation (net of any liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors), to the extent legally available therefor, to redeem, on the seventy-fifth (75th) day after such deemed Liquidation, all outstanding shares of Preferred Stock at a price per share equal to the Series A Liquidation Amount or Series B Liquidation Amount, as applicable, in accordance with the payment provisions set forth in Sections 2(a) and 2(b) above. Prior to the distribution or redemption provided for in this Section 2(c), the Company shall not expend or dissipate the consideration received for such deemed Liquidation, except to discharge expenses incurred in the ordinary course of business.
(d) Shares not Treated as Both Preferred Stock and Common Stock in any Distribution. Shares of Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Preferred Stock.
3. Conversion. The Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Company or any transfer agent for the Preferred Stock. Each share of
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Series A Preferred shall be convertible into that number of fully-paid and nonassessable shares of Common Stock that is equal to $0.75 divided by the Series A Conversion Price (as hereinafter defined). Each share of Series B Preferred shall be convertible into that number of fully-paid and nonassessable shares of Common Stock that is equal to $0.90 divided by the Series B Conversion Price (as hereinafter defined). As of the date on which this Restated Certificate of Incorporation is effective, the Series A Conversion Price shall be $0.75 and the Series B Conversion Price shall be $0.90, each subject to adjustment as provided herein. References to the Conversion Price herein mean both the Series A Conversion Price and the Series B Conversion Price.
(b) Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Series A Conversion Price or Series B Conversion Price, as applicable, immediately upon the consummation of a firmly underwritten public offering pursuant to the Securities Act of 1933, as amended (the Securities Act), on Form S-1 (as defined in the Securities Act) or any successor form, provided, however, that (i) the per share price to the public is not less than $2.70 (equitably adjusted for all stock splits, stock dividends, combinations, reclassifications, recapitalizations and reorganizations with respect to such shares), (ii) the aggregate gross proceeds to the Company are not less than $30,000,000 and (iii) the Common Stock is listed on a national exchange (including the Nasdaq Stock Market) in connection with such public offering. Each share of Series A Preferred shall automatically convert into shares of Common Stock at the then effective Series A Conversion Price upon the affirmative vote of holders of at least a majority of the then outstanding shares of Series A Preferred voting as a separate class. Each share of Series B Preferred shall automatically convert into shares of Common Stock at the then effective Series B Conversion Price upon the affirmative vote of holders of at least 66.67% of the then outstanding shares of Series B Preferred voting as a separate class.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay the fair market value cash equivalent of such fractional share as determined by the Board of Directors. For such purpose, all shares of Preferred Stock held by each holder shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, he, she or it shall surrender the Preferred Stock certificate or certificates, duly endorsed, at the office of the Company or of any transfer agent for the Preferred Stock, and shall give written notice to the Company at such office that such holder elects to convert such shares; provided, however, that in the event of an automatic conversion pursuant to Section 3(b) above, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided further, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless either the certificates evidencing such shares of Preferred Stock are delivered to the Company or its transfer agent as provided above, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company (but shall not be required to provide a bond) to indemnify the Company from any loss incurred by it in connection with such certificates.
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The Company shall, as soon as practicable after delivery of the Preferred Stock certificates, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, plus any declared but unpaid dividends on the converted Preferred Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date; provided, however, that if the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of the sale of such securities.
(d) Adjustments to Conversion Price.
(i) Adjustments for Subdivisions or Combinations of Common. After the date of the effectiveness of this Restated Certificate of Incorporation, if the outstanding shares of Common Stock shall be subdivided (by stock split, stock dividend or otherwise), into a greater number of shares of Common Stock, the Series A Conversion Price and Series B Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. After the date of the effectiveness of this Restated Certificate of Incorporation, if the outstanding shares of Common Stock shall be combined (by stock split, reclassification or otherwise) into a lesser number of shares of Common Stock, the Series A Conversion Price and Series B Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.
(ii) Adjustments for Reclassification, Exchange and Substitution. After the date of the effectiveness of this Restated Certificate of Incorporation, if the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), the Series A Conversion Price and Series B Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Series A Preferred and Series B Preferred, as applicable, shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A Preferred and Series B Preferred, as applicable, immediately before that change.
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(iii) Adjustments for Dilutive Issuances.
(A) After the date of the effectiveness of this Restated Certificate of Incorporation, if the Company shall issue or sell any shares of Common Stock (as actually issued or, pursuant to paragraph (C) below, deemed to be issued) for a consideration per share less than the Series A Conversion Price or Series B Conversion Price, as applicable, in effect immediately prior to such issue or sale, then immediately upon such issue or sale the Series A Conversion Price or Series B Conversion Price, as applicable, shall be reduced to a price (calculated to the nearest cent) determined by multiplying such prior Series A Conversion Price or Series B Conversion Price, as applicable, by a fraction, the numerator of which shall be the number of shares of Calculated Securities (defined below) outstanding immediately prior to such issue or sale plus the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of shares of Common Stock so issued or sold would purchase at such prior Series A Conversion Price or Series B Conversion Price, as applicable, and the denominator of which shall be the number of shares of Calculated Securities outstanding immediately prior to such issue or sale plus the number of shares of Common Stock so issued or sold. Calculated Securities means (i) the sum of (1) all shares of Common Stock actually outstanding; (2) all shares of Common Stock issuable upon conversion of the then outstanding Preferred Stock (without giving effect to any adjustments to the Conversion Price of any series of Preferred Stock as a result of such issuance); and (3) all shares of Common Stock issuable upon exercise and/or conversion of outstanding options, warrants or other rights for the purchase of shares of stock less (ii) any shares of Common Stock subject to repurchase by the Company pursuant to the terms of those certain Restricted Stock Purchase Agreements, (the Purchase Agreements) dated on or about October 27, 2006 between the Company and each of Steven J. Mento, Ph.D., Charles J. Cashion, Alfred P. Spada, Ph.D. and Jennifer Giottonini Cayer (or trusts controlled by such individuals).
(B) For the purposes of paragraph (A) above, none of the following issuances shall be considered the issuance or sale of Common Stock:
(1) The issuance of Common Stock upon the conversion of any outstanding Convertible Securities as of the date hereof or subsequently issued after the date hereof in accordance with this paragraph (B). Convertible Securities shall mean any bonds, debentures, notes or other evidences of indebtedness, and any options, warrants, shares or any other securities convertible into, exercisable for, or exchangeable for Common Stock.
(2) The issuance or sale of any Common Stock or Convertible Securities pursuant to the Companys 2006 Equity Incentive Plan as in effect on the date hereof and as may be amended from time to time with the approval of the Board of Directors, including a majority of the Preferred Directors.
(3) The issuance of any Common Stock or Convertible Securities to effect any stock split, stock dividend or recapitalization of the Company.
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(4) The issuance of any Common Stock or Convertible Securities as a dividend on the Companys stock.
(5) The issuance of shares of Common Stock or Convertible Securities to the Companys employees or officers or directors or outside consultants or contractors pursuant to a plan, agreement or arrangement duly approved by the Board of Directors, including a majority of the Preferred Directors (including the reissuance of shares repurchased by the Company from employees or consultants of the Company).
(6) The issuance of Common Stock or Convertible Securities to lenders, financial institutions, equipment lessors, or real estate lessors to the Company in connection with a bona fide borrowing or leasing transaction approved by the Board of Directors, including a majority of the Preferred Directors.
(7) The issuance of Common Stock or Convertible Securities pursuant to (i) the acquisition of another business by the Company by merger, purchase of substantially all of the assets or shares, or other reorganization whereby the Company or its stockholders own not less than a majority of the voting power of the surviving or successor business, (ii) the acquisition of technology or other intellectual property by outright purchase or (iii) a bona fide license of intellectual property, whether an in-license or out-license of such intellectual property, in each case on terms approved by the Board of Directors, including a majority of the Preferred Directors.
(8) The issuance of Common Stock or Convertible Securities to vendors, suppliers, customers, service providers or other persons affiliated with such organizations with which the Company has a commercial relationship on terms approved by the Board of Directors, including a majority of the Preferred Directors.
(9) The issuance of Common Stock (i) in a public offering before or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock or (ii) to underwriters in connection with such a public offering, in each case on terms approved by the Board of Directors, including a majority of the Preferred Directors.
(10) The issuance or sale of any Common Stock or Convertible Securities pursuant to the Companys Note and Warrant Purchase Agreement dated March 5, 2010 (the Note Purchase Agreement) or the issuance of any Common Stock or Convertible Securities pursuant to any notes or warrants issued pursuant to the Note Purchase Agreement.
(C) For the purposes of paragraph (A) above, the following subparagraphs 1 to 3, inclusive, shall also be applicable:
(1) In case at any time the Company shall grant any rights to subscribe for, or any rights or options to purchase, Convertible Securities, whether or not such rights or options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such rights or options or upon conversion or exchange of
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such Convertible Securities (determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights or options, plus, in the case of any such rights or options which relate to such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options) shall be less than the Series A Conversion Price or Series B Conversion Price, as applicable, in effect immediately prior to the time of the granting of such rights or options, then the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such rights or options shall (as of the date of granting of such rights or options) be deemed to be outstanding and to have been issued for such price per share.
(2) In case at any time the Company shall issue or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (y) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Series A Conversion Price or Series B Conversion Price, as applicable, in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share, provided that if any such issue or sale of such Convertible Securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this paragraph (C), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.
(3) In case at any time any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors.
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(iv) Effect of Spin-off. Notwithstanding the foregoing or anything herein to the contrary, the Spin-off shall not result any adjustment to the Series A Conversion Price or Series B Conversion Price, and no adjustments to the Series A Conversion Price or Series B Conversion Price shall be deemed to have occurred prior the effective date of this Restated Certificate of Incorporation.
(e) Certificate of Adjustments. Upon the occurrence of each adjustment of the Series A Conversion Price or Series B Conversion Price pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment and furnish to each holder of Series A Preferred or Series B Preferred, as applicable, a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company shall, upon the written request at any time of any holder of Series A Preferred or Series B Preferred, furnish to such holder a like certificate setting forth (i) any and all adjustments made to the Series A Preferred or Series B Preferred, as applicable, since the date of the first issuance of Series A Preferred or Series B Preferred, as applicable, (ii) the Series A Conversion Price or Series B Conversion Price, as applicable, at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series A Preferred or Series B Preferred.
(f) Notices of Record Date. In the event that the Company shall propose at any time (i) to declare any dividend or Distribution; (ii) to offer for subscription to the holders of any class or series of its stock any additional shares of stock or other rights; (iii) to effect any reclassification or recapitalization; or (iv) to effect a Liquidation; then, in connection with each such event, the Company shall send to the holders of the Preferred Stock at least 20 days prior written notice of the date on which a record shall be taken for such dividend, Distribution or subscription rights (and specifying the date on which the holders of stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in clauses (iii) and (iv) above. Notwithstanding the requirements of this Section 3(f), this Section 3(f) shall not be applicable and no such notice shall be required with respect to any action that is, or has been, approved by the holders of a majority of the voting power of the then outstanding shares of Preferred Stock, voting as a separate class, whether such approval is given before or after such notice is required.
(g) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Company will, to the fullest extent permitted by law, take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
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(h) Waiver of Adjustment to Conversion Prices. Notwithstanding anything herein to the contrary, (i) any downward adjustment of the Series A Conversion Price may be waived, either generally or in a particular instance, by the vote or written consent of the holders of a majority of the outstanding shares of Series A Preferred Stock and (ii) any downward adjustment of the Series B Conversion Price may be waived, either generally or in a particular instance, by the vote or written consent of the holders of at least 66.67% of the outstanding shares of Series B Preferred Stock. Any such waiver shall be binding upon all current and future holders of shares of such series of Preferred Stock.
4. Voting Rights; Directors.
(a) Generally. On all matters to come before the stockholders, each holder of shares of Preferred Stock shall have that number of votes per share (rounded up to the nearest whole share) equivalent to the number of shares of Common Stock into which such share of Preferred Stock is then convertible determined by reference to the then applicable Conversion Price in effect at the record date of the determination of the holders of the shares entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is first solicited. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held. Except as otherwise required by law or this Restated Certificate of Incorporation, the holders of Preferred Stock shall vote together with the holders of the outstanding shares of Common Stock, and not as a separate class or series.
(b) Directors.
(i) The Board of Directors shall consist of nine (9) members. The holders of the outstanding shares of Series A Preferred, voting as a separate class and to the exclusion of all other classes and series of capital stock of the Company, shall be entitled to elect four (4) members of the Board of Directors (the Series A Preferred Directors) and the holders of the outstanding shares of Series B Preferred, voting as a separate class and to the exclusion of all other classes and series of capital stock of the Company, shall be entitled to elect two (2) members of the Board of Directors (the Series B Preferred Directors, and together with the Series A Preferred Directors, the Preferred Directors). The holders of the outstanding shares of Common Stock, voting as a separate class and to the exclusion of all other classes of capital stock of the Company, shall be entitled to elect one (1) member of the Board of Directors (the Common Director). The holders of the outstanding shares of Common Stock and Preferred Stock, voting together as a single class, shall be entitled to elect the remaining two (2) members of the Board of Directors (the General Directors).
(ii) In the case of any vacancy in the office of a Series A Preferred Director, such vacancy or vacancies may only be filled by the affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred, voting as a separate class. In the case of any vacancy in the office of a Series B Preferred Director, such vacancy or vacancies may only be filled by the affirmative vote of the holders of a majority of the then outstanding shares of Series B Preferred, voting as a separate class. In the case of any vacancy in the office of a General Director, the Preferred Directors and the Common Director may, by affirmative vote of a majority thereof (or the remaining Preferred Director or Common Director if there is but one, or if there is no such director remaining, by the affirmative vote of the holders
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of a majority of the voting power of the then outstanding shares of Preferred Stock and Common Stock, voting together as a single class), elect a successor or successors to hold the office for the unexpired term of the director or directors whose place or places shall be vacant. In the case of any vacancy in the office of a Common Director, the holders of a majority of the then outstanding shares of Common Stock may, by affirmative vote, elect a successor to hold the office for the unexpired term of the director whose place shall be vacant. Any director may be removed during the aforesaid term of office, whether with or without cause, only by the affirmative vote of the holders of a majority of the voting power eligible to vote in an election for the seat occupied by that director (e.g., in order to remove a Series A Preferred Director, the holders of a majority of the Series A Preferred, voting as a separate class and to the exclusion of all other classes of capital stock of the Company, must so vote).
(iii) There shall be no cumulative voting.
5. Amendments and Changes.
(a) Approval by Preferred Stock. Notwithstanding Section 4 above, the Company shall not (by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent as provided by law) of more than 50% of the voting power of the Preferred Stock then outstanding, voting as a separate class:
(i) increase or decrease the total number of authorized shares of the Companys Preferred Stock and/or Common Stock;
(ii) authorize any Liquidation event described in Section 2(c) above;
(iii) pay or declare a dividend on any of the Companys stock;
(iv) change the authorized number of directors comprising the Board of Directors;
(v) take any action that redeems, purchases or otherwise acquires any shares of Common Stock other than in connection with the repurchase of Common Stock at the original purchase price (or the lesser of the original purchase price or fair market value) pursuant to stock restriction agreements, stock option agreements or other agreements or plans providing for employee, consultant or director ownership of Common Stock;
(vi) issue any Common Stock or Convertible Securities other than (A) pursuant to the Purchase Agreement or under the Companys 2006 Equity Incentive Plan, or (B) to the Companys employees or officers or directors or outside consultants or contractors pursuant to a plan, agreement or arrangement duly approved by the Board of Directors, including a majority of the Preferred Directors (including the reissuance of shares repurchased by the Company from employees or consultants of the Company); or
(vii) acquire or in-license any pharmaceutical products or enter into any material out-licensing or corporate partnering agreements other than material transfer agreements, unless such transaction is approved by the Board of Directors, including a majority of the Preferred Directors.
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(b) Approval by Series B Preferred. Notwithstanding Section 4 above, the Company shall not (by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent as provided by law) of more than 66.67% of the Series B Preferred then outstanding, voting as a separate class:
(i) amend or repeal any provision of, or add any provision to, the Certificate of Incorporation or the bylaws of the Company (whether by merger, consolidation, capital reorganization or otherwise in a manner that adversely affects the rights, preferences or privileges of the Series B Preferred);
(ii) increase or decrease the authorized number of shares of Series B Preferred;
(iii) authorize, issue or otherwise create shares of any class or series of stock having any preference over, or on parity with, the Series B Preferred with respect to any rights, preferences or privileges associated with the Series B Preferred including, but not limited to rights or preferences with respect to redemption, voting, liquidation preference or dividends; or
(iv) incur aggregate principal amount of indebtedness for borrowed money in excess of $2,000,000, unless such indebtedness is approved by the Board of Directors, including each of the Series B Preferred Directors.
(c) Approval by Series A Preferred. Notwithstanding Section 4 above, the Company shall not (by amendment, merger, consolidation or otherwise), without first obtaining the approval (by vote or written consent as provided by law) of more than 50% of the Series A Preferred then outstanding, voting as a separate class:
(i) amend or repeal any provision of, or add any provision to, the Certificate of Incorporation or the bylaws of the Company (whether by merger, consolidation, capital reorganization or otherwise in a manner that adversely affects the rights, preferences or privileges of the Series A Preferred);
(ii) increase or decrease the authorized number of shares of Series A Preferred;
(iii) authorize, issue or otherwise create shares of any class or series of stock having any preference over, or on parity with, the Series A Preferred with respect to any rights, preferences or privileges associated with the Series A Preferred including, but not limited to rights or preferences with respect to redemption, voting, liquidation preference or dividends; or
(iv) incur aggregate principal amount of indebtedness for borrowed money in excess of $2,000,000, unless such indebtedness is approved by the Board of Directors, including each of the Series A Preferred Directors.
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6. Redemption. The Preferred Stock is not redeemable except in accordance with Section 2(c) above.
7. Notices. Any notice required by the provisions of this Article FOURTH to be given to the holders of Preferred Stock shall be deemed given upon personal delivery, or five (5) days after deposit in the United States mail, postage prepaid, or five (5) days after deposit with a nationally recognized overnight courier, and addressed to each holder of record at such holders address appearing on the books of the Company.
8. Spin-off. Following the effectiveness of this Restated Certificate of Incorporation, this Company intends to effect a distribution of all then outstanding shares of capital stock of Idun Pharmaceuticals, Inc. (the Sister Company) to the stockholders of this Company on a share-for-share basis pursuant to which each holder of a share of this Companys Series A Preferred Stock shall receive a corresponding share of Series A Preferred of the Sister Company (Sister Company Series A Preferred), each holder of a share of this Companys Series B Preferred Stock shall receive a corresponding share of Series B Preferred of the Sister Company (Sister Company Series B Preferred), and each holder of a share of this Companys Common Stock shall receive a corresponding share of Common Stock of the Sister Company (Sister Company Common Stock). The initial distribution by this Company of the shares of Sister Company Series A Preferred, Sister Company Series B Preferred Stock and Sister Company Common Stock to this Companys stockholders, together with any transfer of assets between or among this Company and the Sister Company prior to such distribution (all such transactions, collectively, the Spin-off), shall be excluded from the provisions of this Restated Certificate of Incorporation and the Restated Certification of Incorporation of the Sister Company, including, but not limited to, any dividend requirements pursuant to Section 1, liquidation preference pursuant to Section 2, anti-dilution adjustments pursuant to Section 3, and voting requirements pursuant to Section 5.
FIFTH
Subject to Article FOURTH, Section 5, the Board of Directors shall have the power to adopt, amend and repeal the bylaws of the Company (except insofar as the bylaws of the Company as adopted by action of the stockholders of the Company shall otherwise provide). Any bylaws approved by the Board of Directors under the powers conferred hereby may be amended or repealed by the Board of Directors or by the stockholders, and the powers conferred in this Article FIFTH shall not abrogate the right of the stockholders to adopt, amend and repeal bylaws.
SIXTH
Election of directors need not be by written ballot unless the bylaws of the Company shall so provide.
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SEVENTH
The Company reserves the right to amend the provisions in this Restated Certificate of Incorporation and in any certificate amendatory hereof in the manner now or hereafter prescribed by law, and all rights conferred on stockholders or others hereunder or thereunder are granted subject to such reservation.
EIGHTH
(a) To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article EIGHTH to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended.
(b) The Company shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the Company or any predecessor of the Company or serves or served at any other enterprise as a director, officer or employee at the request of the Company or any predecessor to the Company to the same extent as permitted under subparagraph (a) above.
(c) Neither any amendment nor repeal of this Article EIGHTH, nor the adoption of any provision of the Companys Certificate of Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of this Article EIGHTH in respect of any matter occurring or any action or proceeding accruing or arising or that, but for this Article EIGHTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
(d) The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED BYLAWS
OF
CONATUS PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Page | ||||||
ARTICLE I - OFFICES |
1 | |||||
Section 1. |
REGISTERED OFFICES | 1 | ||||
Section 2. |
OTHER OFFICES | 1 | ||||
ARTICLE II - MEETINGS OF STOCKHOLDERS |
1 | |||||
Section 1. |
PLACE OF MEETINGS | 1 | ||||
Section 2. |
ANNUAL MEETING OF STOCKHOLDERS | 1 | ||||
Section 3. |
QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF | 1 | ||||
Section 4. |
VOTING | 2 | ||||
Section 5. |
PROXIES | 2 | ||||
Section 6. |
SPECIAL MEETINGS | 2 | ||||
Section 7. |
NOTICE OF STOCKHOLDERS MEETINGS | 2 | ||||
Section 8. |
MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST | 2 | ||||
Section 9. |
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING | 2 | ||||
ARTICLE III - DIRECTORS |
3 | |||||
Section 1. |
THE NUMBER OF DIRECTORS | 3 | ||||
Section 2. |
VACANCIES | 3 | ||||
Section 3. |
POWERS | 3 | ||||
Section 4. |
PLACE OF DIRECTORS MEETINGS | 4 | ||||
Section 5. |
REGULAR MEETINGS | 4 | ||||
Section 6. |
SPECIAL MEETINGS | 4 | ||||
Section 7. |
QUORUM | 4 | ||||
Section 8. |
ACTION WITHOUT MEETING | 4 | ||||
Section 9. |
TELEPHONIC MEETINGS | 4 | ||||
Section 10. |
COMMITTEES OF DIRECTORS | 4 | ||||
Section 11. |
MINUTES OF COMMITTEE MEETINGS | 5 | ||||
Section 12. |
CHAIRMAN OF THE BOARD | 5 | ||||
Section 13. |
COMPENSATION OF DIRECTORS | 5 | ||||
ARTICLE IV - OFFICERS |
5 | |||||
Section 1. |
OFFICERS | 5 | ||||
Section 2. |
ELECTION OF OFFICERS | 5 | ||||
Section 3. |
SUBORDINATE OFFICERS | 5 |
Section 4. |
COMPENSATION OF OFFICERS | 5 | ||||
Section 5. |
TERM OF OFFICE; REMOVAL AND VACANCIES | 6 | ||||
Section 6. |
PRESIDENT | 6 | ||||
Section 7. |
VICE PRESIDENTS | 6 | ||||
Section 8. |
SECRETARY | 6 | ||||
Section 9. |
ASSISTANT SECRETARY | 6 | ||||
Section 10. |
TREASURER | 6 | ||||
Section 11. |
ASSISTANT TREASURER | 7 | ||||
ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS |
7 | |||||
ARTICLE VI - INDEMNIFICATION OF EMPLOYEES AND AGENTS |
9 | |||||
ARTICLE VII - CERTIFICATES OF STOCK |
9 | |||||
Section 1. |
CERTIFICATES | 9 | ||||
Section 2. |
SIGNATURES ON CERTIFICATES | 9 | ||||
Section 3. |
STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES | 9 | ||||
Section 4. |
LOST CERTIFICATES | 10 | ||||
Section 5. |
TRANSFERS OF STOCK | 10 | ||||
Section 6. |
FIXED RECORD DATE | 10 | ||||
Section 7. |
REGISTERED STOCKHOLDERS | 10 | ||||
ARTICLE VIII - GENERAL PROVISIONS |
11 | |||||
Section 1. |
DIVIDENDS | 11 | ||||
Section 2. |
PAYMENT OF DIVIDENDS; DIRECTORS DUTIES | 11 | ||||
Section 3. |
CHECKS | 11 | ||||
Section 4. |
FISCAL YEAR | 11 | ||||
Section 5. |
CORPORATE SEAL | 11 | ||||
Section 6. |
MANNER OF GIVING NOTICE | 11 | ||||
Section 7. |
WAIVER OF NOTICE | 11 | ||||
Section 8. |
ANNUAL STATEMENT | 11 | ||||
ARTICLE IX - AMENDMENTS |
11 | |||||
Section 1. |
AMENDMENT BY DIRECTORS OR STOCKHOLDERS | 11 | ||||
ARTICLE X - RIGHT OF FIRST REFUSAL |
12 | |||||
Section 1. |
RESTRICTION ON TRANSFER | 12 | ||||
Section 2. |
NOTICE REQUIREMENT | 12 | ||||
Section 3. |
OPTION OF THE CORPORATION | 12 | ||||
Section 4. |
SPECIAL PROVISIONS REGARDING EXCHANGES | 12 | ||||
Section 5. |
EFFECT OF PURCHASE | 12 | ||||
Section 6. |
CERTAIN TRANSFERS EXEMPT | 13 |
Section 7. |
LIMITATIONS ON RIGHT OF FIRST REFUSAL | 13 | ||||
Section 8. |
WAIVER | 14 | ||||
Section 9. |
ASSIGNMENT; ALTERNATIVE RIGHTS | 14 | ||||
Section 10. |
LEGEND | 14 |
AMENDED AND RESTATED BYLAWS
OF
CONATUS PHARMACEUTICALS INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the Board of Directors. In the absence of any such designation, stockholders meetings shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of stockholders shall be held each year on a date and a time designated by the Board of Directors. At each annual meeting directors shall be elected in the manner provided in the certificate of incorporation of the corporation (the Certificate of Incorporation) and in the Bylaws, and any other proper business may be transacted.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of the stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or represented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation, or by these Bylaws. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting stock represented in person or by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat.
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Section 4. VOTING. When a quorum is present at any meeting, in all matters other than the election of directors, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes, or the Certificate of Incorporation, or these Bylaws, a different vote is required in which case such express provision shall govern and control the decision of such question. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
Section 5. PROXIES. At each meeting of the stockholders, each stockholder having the right to vote may vote in person or may authorize another person or persons to act for him or her by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the corporation at the beginning of each meeting in order to be counted in any vote at the meeting. Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall have one vote for each share of stock having voting power, registered in his or her name on the books of the corporation on the record date set by the Board of Directors as provided in Article VII, Section 6 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose, or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the President and shall be called by the Chairman of the Board, President or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding, and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 7. 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 notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written notice of any meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders
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of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section 9 to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. Unless otherwise provided by law, the number of directors which shall constitute the whole Board of Directors shall be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the directors. The directors need not be stockholders. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his or her successor is elected and qualified; provided, however, that unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, either with or without cause, from the Board of Directors at any meeting of stockholders by a majority of the stock represented and entitled to vote thereat.
Section 2. VACANCIES. Vacancies on the Board of Directors by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.
Section 3. POWERS. The property and business of the corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
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Section 4. PLACE OF DIRECTORS MEETINGS. The directors may hold their meetings and have one or more offices, and keep the books of the corporation outside of the State of Delaware.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the President on forty-eight (48) hours notice to each director, either personally or by mail, e-mail or by telegram; special meetings shall be called by the Chairman of the Board, President or the Secretary in like manner and on like notice on the written request of two directors unless the Board of Directors consists of only one director; in which case special meetings shall be called by the Chairman of the Board, President or Secretary in like manner or on like notice on the written request of the sole director.
Section 7. QUORUM. At all meetings of the Board of Directors a majority of the authorized number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If only one director is authorized, such sole director shall constitute a quorum.
Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar 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 such meeting.
Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each such committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the
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Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporations property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.
Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Section 12. CHAIRMAN OF THE BOARD. The Board of Directors may designate one of its members to serve as Chairman of the Board, and if so, the Chairman of the Board shall, if present, preside at all meetings of the Board of Directors and stockholders, and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the Board of Directors or prescribed by these Bylaws.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be chosen by the Board of Directors and shall include a President and a Secretary. The corporation may also have at the discretion of the Board of Directors such other officers as are desired, including a Vice-Chairman of the Board of Directors, a Chief Executive Officer, a Chief Financial Officer or Treasurer, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 hereof. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President, or other similar or dissimilar title. At the time of the election of officers, the directors may by resolution determine the order of their rank. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its first meeting after each annual meeting of stockholders, shall choose the officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors.
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Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors.
Section 6. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors. He or she shall be an ex-officio member of all committees and shall have the general powers and duties of management usually vested in the office of President and Chief Executive Officer of corporations, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
Section 7. VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall have such other duties as from time to time may be prescribed for them, respectively, by the Board of Directors.
Section 8. SECRETARY. The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required by the Board of Directors. He or she shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or these Bylaws. He or she shall keep in safe custody the seal of the corporation, and when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed it shall be attested by his or her signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his or her signature.
Section 9. ASSISTANT SECRETARY. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, or if there be no such determination, the Assistant Secretary designated by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
Section 10. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief Financial Officer or Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the corporation, in such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Chief Financial Officer or Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he or she shall give the corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board of
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Directors, for the faithful performance of the duties of his or her office and for the restoration to the corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the corporation.
Section 11. ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, or if there be no such determination, the Assistant Treasurer designated by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer or Treasurer, perform the duties and exercise the powers of the Chief Financial Officer or Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify to the maximum extent permitted by law 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 (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer 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 him or her in connection with such action, suit or proceeding if he or she 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 corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or 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 he or she 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 his or her conduct was unlawful.
(b) The corporation shall indemnify to the maximum extent permitted by law 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 he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she 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 corporation and except that no such 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 of Delaware 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 such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the corporation shall be successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b), or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him or her in connection therewith.
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(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. The corporation, acting through its Board of Directors or otherwise, shall cause such determination to be made if so requested by any person who is indemnifiable under this Article V.
(e) Expenses (including attorneys fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized in this Article V.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.
(g) The Board of Directors may authorize, by a vote of a majority of a quorum of the Board of Directors, the corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article V.
(h) For the purposes of this Article V, 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 or officers so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, 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; and references to serving at the request of the corporation shall include service as a director or officer of the corporation which imposes duties on, or involves services by, such director or officer 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 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 section.
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(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
(k) The corporation shall be required to indemnify a person in connection with an action, suit or proceeding (or part thereof) initiated by such person only if the action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the corporation.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may indemnify every person who was or is a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was an employee or agent of the corporation or, while an employee or agent of the corporation, is or was serving at the request of the corporation as an employee or agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, to the extent permitted by applicable law.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer of the corporation, certifying the number of shares represented by the certificate owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the 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 which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to
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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.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or the transfer agent of the corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders, or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date which shall not 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 sixty nor less than ten days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date which shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware.
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ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to and subject to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS DUTIES. Before payment of any dividend there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation, and the directors may abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and notes of the corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall contain two concentric circles with the name of the corporation between the two circles and the date and state of incorporation appearing in the inner circle.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his or her address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
Section 8. ANNUAL STATEMENT. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of
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Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such special meeting. If the power to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the Certificate of Incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.
ARTICLE X
RIGHT OF FIRST REFUSAL
Section 1. RESTRICTION ON TRANSFER. No stockholder of the corporation shall transfer, assign, hypothecate, encumber, pledge or otherwise alienate (hereinafter Transfer) any shares of Common Stock of the corporation (the Common Stock) owned by such stockholder unless such stockholder previously complied with all provisions of this Article X; provided, however, that the restrictions of this Article X shall not apply to any shares of Common Stock issued upon conversion of the Companys Preferred Stock. Any Transfer not made in accordance with this Article X shall be void, and the corporation shall not treat the transferee in such transaction as a stockholder for any purpose.
Section 2. NOTICE REQUIREMENT. If a stockholder seeks to Transfer any Common Stock, whether voluntarily or involuntarily, such stockholder (the Offering Stockholder) shall first give simultaneous written notice of such intention (Notice of Transfer) to the Secretary of the corporation. The Notice of Transfer shall specify the number of shares of Common Stock to be transferred (the Offered Shares), and state the price and all other terms of the proposed transaction. The Notice of Transfer shall constitute an irrevocable offer to sell the Offered Shares during the periods described below.
Section 3. OPTION OF THE CORPORATION. For twenty-five (25) days following the delivery of a Notice of Transfer (the Option Period), the corporation shall have an irrevocable right to purchase all or a portion of the Offered Shares in accordance with the terms stated in the Notice of Transfer. The right may be exercised by a written notice, signed by the President of the corporation (the Corporation Notice), stating that the corporation desires to purchase the Offered Shares and tendering the purchase price therefor. Such notice and the purchase price for the Offered Shares shall be delivered to the Offering Stockholder before expiration of the Option Period. Failure to so respond within the Option Period to the Notice of Transfer shall be deemed an irrevocable waiver by the corporation of its right to acquire the Offered Shares. The corporation shall effect the purchase of the Offered Shares, including payment of the purchase price, not more than five (5) business days after delivery of the Corporation Notice, and at such time the Offering Stockholder shall deliver to the corporation the certificate(s) representing the Offered Shares to be purchased by the corporation, each certificate to be properly endorsed for transfer. Any Common Stock so purchased by the corporation shall thereupon be cancelled and cease to be issued and outstanding shares of the corporations Common Stock.
Section 4. SPECIAL PROVISIONS REGARDING EXCHANGES. If the Notice of Transfer specifies consideration other than cash, then the Offered Shares may be purchased in cash for the fair market value of such property, as determined in good faith by the Board of Directors. In the event that the Board of Directors decides to hire an independent appraiser in connection with such determination, all expenses for such independent appraiser shall be borne by the Offering Stockholder.
Section 5. EFFECT OF PURCHASE. For purposes of Section 3 of this Article X, the purchase price for Offered Shares shall be deemed tendered, and said Offered Shares shall be deemed purchased, at such time as the Offering Stockholder receives written notice enclosing a cashiers check
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for the purchase price or stating that the purchase price has been delivered to a third party (such as counsel to the corporation) with instructions to deliver such amount to the Offering Stockholder upon surrender of certificates representing the Offered Shares, duly endorsed with signatures guaranteed. All rights accorded the Offering Stockholder with respect to the Offered Shares, other than the right to payment therefor, shall cease at that time. If payment is tendered directly to the Offering Stockholder, the Offering Stockholder shall promptly, but in no event later than five (5) business days, cause to be delivered certificate(s) representing the Offered Shares, duly endorsed with signatures guaranteed, to the corporations transfer agent for cancellation or transfer.
Section 6. CERTAIN TRANSFERS EXEMPT. Notwithstanding anything else contained in this Article X to the contrary, an Offering Stockholder shall be permitted to make Transfers of certain shares of Common Stock held by such Offering Stockholder without complying with the provisions of Sections 1 through 5 of this Article X above if such Transfer is:
(a) to the Offering Stockholders spouse, parents, children, or siblings or other members of the Offering Stockholders family (including relatives by marriage), or to a trust for the benefit of the Offering Stockholder or any of the foregoing members of his or her family, or to a custodian, trustee or other fiduciary for the account of the Offering Stockholder or any of the foregoing members of his or her family in connection with a bona fide estate planning transaction; provided, however, that this Section shall not permit any Transfer to be made by the Offering Stockholder in connection with the dissolution of the Offering Stockholders marriage or the legal separation of the Offering Stockholder and Offering Stockholders spouse to such spouse on the account of any settlement of any community property or other marital property rights such spouse may have in such shares;
(b) by way of bequest or inheritance upon death;
(c) to any person, association or entity that, directly or indirectly, through one or more intermediaries, has voting control or has its voting controlled by, or is under common voting control with, such Offering Stockholder;
(d) by way of a bona fide gift;
(e) in connection with a Change of Control (as defined in Section 7 of this Article X below); or
(f) subject to an alternative right of first refusal or similar right granted by the Offering Stockholder to the corporation or, with the corporations consent, to a third party or parties, which is more restrictive upon the Offering Stockholder in the Board of Directors sole judgment than the restrictions imposed upon the Offering Stockholder under this Article X, including in certain circumstances, but not limited to, restricted stock purchase agreements, co-sale agreements and equity incentive award plans.
Any Transfer set forth in clauses (a) through (f) of this Section 6 may be referred to herein as a Permitted Transfer.
Section 7. LIMITATIONS ON RIGHT OF FIRST REFUSAL. The restrictions imposed by this Article X shall not apply to and shall terminate upon (i) the closing of a firmly underwritten public offering of Common Stock or (ii) the closing of any transaction or series of related transactions constituting (a) a reorganization, merger, consolidation or sale of all or substantially all of the corporations stock, as a result of which transaction or series of related transactions the corporations
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stockholders of record as constituted immediately prior to such transaction or series of related transactions hold less than a majority of the outstanding voting power of the surviving or acquiring entity after the consummation of such transaction or series of related transactions; or (b) a sale of all or substantially all of the assets of the corporation (each of clauses (a) and (b) a Change of Control).
Section 8. WAIVER. The provisions of this Article X may be waived with respect to any Transfer only in writing signed by the corporation.
Section 9. ASSIGNMENT; ALTERNATIVE RIGHTS. The corporation may assign its rights under this Article X or grant alternative rights of first refusal or similar rights to a third party or parties.
Section 10. LEGEND. Any and all certificates representing any shares of Common Stock shall bear a legend referring to the restrictions imposed by this Article X in substantially the form below:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE AMENDED AND RESTATED BYLAWS OF THE CORPORATION, A COPY OF WHICH ARE ON FILE WITH THE SECRETARY OF THE CORPORATION.
[Remainder of page intentionally left blank]
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of Conatus Pharmaceuticals Inc., a Delaware corporation (the Corporation); and
(2) That the foregoing amended and restated bylaws constitute the bylaws of the Corporation as duly adopted by the written consent of the stockholders of the Corporation dated as of October 20, 2006 and written consent of the Board of Directors of the Corporation dated as of October 20, 2006.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 20th day of October, 2006.
/s/ Charles J. Cashion |
Charles J. Cashion |
Secretary |
Exhibit 4.2
CONATUS PHARMACEUTICALS INC.
FIRST AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
February 9, 2011
TABLE OF CONTENTS
Page | ||||||
SECTION 1. |
CERTAIN DEFINITIONS |
1 | ||||
SECTION 2. |
COVENANTS OF THE COMPANY |
3 | ||||
2.1 |
Financial Statements and Reports to Stockholders; Budget |
3 | ||||
2.2 |
Confidentiality |
4 | ||||
2.3 |
Proprietary Information and Inventions Agreements |
4 | ||||
2.4 |
Restriction on Sales by Employees |
4 | ||||
2.5 |
Qualified Small Business |
4 | ||||
2.6 |
Board Meeting; Compensation of Directors |
5 | ||||
2.7 |
Stock Vesting |
5 | ||||
2.8 |
Property Insurance |
5 | ||||
2.9 |
Inspection |
5 | ||||
2.10 |
Termination of Covenants |
5 | ||||
SECTION 3. |
REGISTRATION RIGHTS |
5 | ||||
3.1 |
Demand Registration |
5 | ||||
3.2 |
Piggyback Registration |
8 | ||||
3.3 |
Expenses of Registration |
10 | ||||
3.4 |
Registration Procedures |
10 | ||||
3.5 |
Information Furnished by Holder |
12 | ||||
3.6 |
Indemnification |
12 | ||||
3.7 |
Limitations on Registration Rights Granted to Other Securities |
14 | ||||
3.8 |
Transfer of Rights |
14 | ||||
3.9 |
Market Stand-off |
15 | ||||
3.10 |
No-Action Letter or Opinion of Counsel in Lieu of Registration; Conversion of Registrable Securities |
15 | ||||
3.11 |
Sale of Preferred Stock to Underwriter |
15 | ||||
3.12 |
Rule 144 Requirements |
16 | ||||
3.13 |
Termination of Company Agreements |
16 | ||||
SECTION 4. |
RIGHT OF FIRST REFUSAL |
16 | ||||
4.1 |
Right of First Refusal |
16 | ||||
4.2 |
Definition of New Securities |
16 | ||||
4.3 |
Notices |
17 |
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TABLE OF CONTENTS
(continued)
Page | ||||||
4.4 |
Failure to Exercise Right |
18 | ||||
4.5 |
Rights of Affiliated Investors |
18 | ||||
4.6 |
Assignment |
18 | ||||
4.7 |
Termination |
18 | ||||
SECTION 5. |
MISCELLANEOUS |
18 | ||||
5.1 |
Entire Agreement; Successors and Assigns |
18 | ||||
5.2 |
Aggregation of Stock |
18 | ||||
5.3 |
Governing Law |
19 | ||||
5.4 |
Counterparts |
19 | ||||
5.5 |
Headings |
19 | ||||
5.6 |
Notices |
19 | ||||
5.7 |
Amendment of Agreement; Waivers |
19 | ||||
5.8 |
Additional Investors |
19 |
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CONATUS PHARMACEUTICALS INC.
FIRST AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS FIRST AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this Agreement) is made as of February 9, 2011, by and among CONATUS PHARMACEUTICALS INC., a Delaware corporation (the Company), and each of the entities and persons listed on Schedule A hereto (collectively, the Investors).
RECITALS
A. Certain of the Investors are purchasing shares of the Companys Series B Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock), pursuant to that certain Series B Preferred Stock Purchase Agreement of even date herewith (the Purchase Agreement).
B. The Company and certain of the Investors are party to that certain Investor Rights Agreement dated as of October 27, 2006 among the Company and the parties named therein (the Prior Agreement).
C. The Company and the Investors party to the Prior Agreement desire to amend and restate the Prior Agreement in its entirety pursuant to Section 5.7 thereof and to accept the rights and obligations provided herein in lieu of such previously granted rights and obligations.
D. The obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement.
THE PARTIES AGREE AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the following respective meanings:
(a) Affiliate shall mean with respect to any Person, any Person which directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person.
(b) Board shall mean the Board of Directors of the Company.
(c) Commission shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
(d) Form S-3 shall mean Form S-3 issued by the Commission or any substantially similar form then in effect.
(e) Founders shall mean Steven J. Mento, Alfred P. Spada, Charles J. Cashion and Jennifer Giottonini Cayer.
(f) Holder shall mean any Person entering into this Agreement and any holder of outstanding Registrable Securities or an assignee or transferee of Registration rights as permitted by Section 3.8.
(g) Initiating Holders shall mean Holders who in the aggregate hold at least thirty percent (30%) of the Registrable Securities.
(h) Major Investor shall mean any Investor or subsequent holder of at least 1,000,000 shares of Preferred Stock or the Common Stock issued upon conversion thereof (equitably adjusted for all stock splits, subdivisions, stock dividends, combinations and the like with respect to such shares). For purposes of determining the status of an Investor as a Major Investor, shares of Preferred Stock and Common Stock of any general partners, managing members and Affiliates of such Investor shall be deemed to be shares of such Investor.
(i) Material Adverse Event shall mean an occurrence having a consequence that either (a) is materially adverse as to the business, properties, prospects or financial condition of the Company or (b) is reasonably foreseeable, has a reasonable likelihood of occurring, and if it were to occur would reasonably be expected to materially adversely affect the business, properties, prospects or financial condition of the Company.
(j) Person shall mean an individual, a corporation, a partnership, a trust or unincorporated organization or any other entity or organization.
(k) Preferred Directors shall mean the Series A Directors and the Series B Directors.
(l) Preferred Stock shall mean the Companys Series A Preferred Stock and Series B Preferred Stock.
(m) Qualified Public Offering shall mean a firmly underwritten public offering of the Companys Common Stock Registered pursuant to the Securities Act on Form S-1 (as defined in the Securities Act) or any successor form, provided, however, that (i) the per share price to the public is not less than $2.70 (equitably adjusted for all stock splits, sub-divisions, stock dividends, combinations and the like), (ii) the aggregate gross proceeds to the Company are not less than $30,000,000, and (iii) the Companys Common Stock is listed on a national exchange or the Nasdaq Stock Market in connection with such public offering.
(n) The terms Register, Registered and Registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act (Registration Statement), and the declaration or ordering of the effectiveness of such Registration Statement.
(o) Registrable Securities shall mean (i) all Common Stock not previously sold to the public issued or issuable upon conversion of any of the Preferred Stock purchased by or issued to the Investors, (ii) all shares of Common Stock owned by the Investors, (iii) any shares of Common Stock issued or issuable upon conversion of any Preferred Stock granted registration rights pursuant to Section 3.7 of this Agreement, and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the Common Stock described in clauses (i) through (iii) of this definition.
(p) Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 3.1 or 3.2 of this Agreement, including, without limitation, all federal and state registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company and fees and disbursements of not more than one (1) special counsel for the Holders (if different from the Company), blue sky fees and expenses, and the expense of any special audits incident to or required by any such Registration.
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(q) Securities Act shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.
(r) Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement.
(s) Series A Directors shall mean the directors elected solely by the holders of the Companys Series A Preferred Stock.
(t) Series B Directors shall mean the directors elected solely by the holders of the Companys Series B Preferred Stock.
(u) Special Registration Statement shall mean (i) a registration statement relating to any employee benefit plan, (ii) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, including any registration statements related to the resale of securities issued in such a transaction, or (iii) a registration related to stock issued upon conversion of debt securities.
SECTION 2. COVENANTS OF THE COMPANY
2.1 Financial Statements and Reports to Stockholders; Budget. The Company shall deliver to each Major Investor:
(a) As soon as practicable after the end of each fiscal year of the Company, but in any event within one hundred twenty (120) days thereafter, an audited consolidated balance sheet of the Company as of the end of such year and audited consolidated statements of income, stockholders equity and cash flows for such year, which year-end financial reports shall be in reasonable detail and prepared in accordance with generally accepted accounting principles (GAAP), and shall be accompanied by the opinion of independent public accountants of recognized standing selected by the Company.
(b) As soon as practicable after the end of each of the first three fiscal quarters of each fiscal year of the Company, but in any event within forty-five (45) days thereafter, (i) unaudited financial statements of the Company on a quarterly basis prepared in accordance with GAAP and fairly reflecting the fiscal affairs of the Company to the date thereof (with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made) and (ii) a summary of actual performance versus budgeted performance for such fiscal quarter in form and substance reasonably acceptable to the Investors.
(c) As soon as practicable after the end of each month, but in any event within thirty (30) days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of each such month and consolidated statements of income and cash flow for such month and for the current fiscal year to date, which shall be in reasonable detail.
(d) Within thirty (30) days prior to the end of each fiscal year, an operating budget and plan respecting the next fiscal year, prepared on a monthly basis, and, as soon as prepared, any other updated or revised budgets for such fiscal year prepared by the Company.
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2.2 Confidentiality. Each Investor agrees and will cause any representative of the Investor to hold in confidence and trust and not use or disclose any information provided to or learned by it in connection with its rights under this Section 2, except that such Investor may disclose such information to any general partner, limited partner, member, subsidiary or parent (and their respective representatives) of such Investor for the purpose of evaluating its investment in the Company as long as (a) such general partner, limited partner, member, subsidiary or parent is advised of the confidentiality provisions of this Section 2.2 and (b) such Investor uses its commercially reasonable best efforts to ensure that such general partner, limited partner, member, subsidiary or parent agrees to hold such information in confidence as provided herein. Notwithstanding the foregoing, however, the obligation of each Investor to hold information confidential as provided herein or any other document or agreement relating thereto shall not prohibit such Investor from disclosing such information: (i) to its board of directors, investment advisers, attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with its investment in the Company, provided that such persons agree to hold such information confidential as provided herein and in such provisions (as modified by this paragraph); (ii) to any prospective purchaser of any shares of the Company owned by such Investor as long as such prospective purchaser agrees in writing to be bound by the confidentiality provisions as provided herein or in such provisions (as modified by this paragraph); (iii) to such Investors investment advisor or any investment companies managed by such Investors investment advisor, provided that such persons agree to hold such information confidential as provided herein or in such provisions (as modified by this paragraph); or (iv) as required by applicable law or regulation, regulatory body, stock exchange, court or administrative order, or any listing or trading agreement concerning such Investor or the Company. Furthermore, nothing in this Section 2.2 shall restrict any Investors ability to disclose the existence or nature of its relationship with the Company, the nature or amount of its investment in securities of the Company or to provide its Affiliates with quarterly, annual or other reports and such other information about the Company prepared by such Investor in the ordinary course of its business, provided that said Investor takes commercially reasonable measures to ensure that any such Affiliates protect the confidential nature of such confidential information.
2.3 Proprietary Information and Inventions Agreements. The Company agrees to require each employee and officer of the Company to execute the form of proprietary information and inventions assignment agreement previously provided to the Investors or their counsel, and each consultant and advisor of the Company to execute an agreement that provides for confidential treatment of the Companys proprietary information as a condition of employment or engagement, or continued employment or engagement, as the case may be, unless otherwise approved by the Board.
2.4 Restriction on Sales by Employees. The Company and Holders agree that, until the time of a Qualified Public Offering, first, the Company, and second, the Investors will have a right of first refusal on all transfers of Common Stock by employees of the Company, subject to transfers to family members or trusts for the benefit of family members and other limited exceptions as determined by the Board. The Company agrees to include appropriate language to this effect in its Bylaws or in future employment agreements, stock option and/or restricted stock grants, or other similar agreements with employees.
2.5 Qualified Small Business. The Company covenants that so long as any Preferred Stock, or the Common Stock into which such shares are converted, are held by a Holder in whose hands such shares of Common Stock are eligible to qualify as qualified small business stock as defined in Section 1202(c) of the of the Internal Revenue Code of 1986, as amended (the Code) (Qualified Small Business Stock), it will (i) comply with any applicable filing or reporting requirements imposed by the Code on issuers of Qualified Small Business Stock and (ii) execute and deliver to each Holder, from time to time, such forms, documents, schedules and other instruments as may be reasonably requested thereby to cause the Preferred Stock, or the Common Stock into which such shares are converted, to qualify as Qualified Small Business Stock.
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2.6 Board Meeting; Compensation of Directors. The Company hereby covenants that so long as the holders of Preferred Stock are entitled to appoint any members of the Board of Directors pursuant to the Companys Restated Certificate of Incorporation, the Board shall not meet less frequently than quarterly. The Board will determine the compensation for all directors. All out-of-pocket and travel expenses of the directors incurred in attending Board meetings (or meetings of committees thereof) or in connection with the performance of their duties as directors shall be paid or reimbursed promptly by the Company.
2.7 Stock Vesting. Unless otherwise approved by the Board, including a majority of the Preferred Directors, all stock options and stock awards (other than those certain stock options contemplated by Section 6.15 of the Purchase Agreement) granted after the date of this Agreement to employees, consultants and other service providers shall be subject to four year vesting as follows: (a) 25% of such stock shall vest at the end of the first year following the date of grant and (b) 75% of such stock shall vest monthly over the remaining three years.
2.8 Property Insurance. Except as otherwise decided in accordance with policies adopted by the Board, including a majority of the Preferred Directors, the Company will keep its assets and those of its subsidiaries which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Companys line of business, and the Company will maintain, with financial sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated.
2.9 Inspection. 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.
2.10 Termination of Covenants. The covenants of the Company set forth in this Section 2 shall be terminated and be of no further force or effect upon the earlier of (a) the effective date of the Companys Registration Statement filed in connection with the Companys first Qualified Public Offering, (b) the date when no shares of Registrable Securities or Preferred Stock shall be outstanding and (c) the date the Company becomes a reporting company under the Securities and Exchange Act of 1934, as amended.
SECTION 3. REGISTRATION RIGHTS
3.1 Demand Registration.
3.1.1. Request for Registration on Form other than Form S-3. Subject to the terms of this Agreement, in the event that the Company shall receive from the Initiating Holders at any time after the earlier of (i) two (2) years after the date of this Agreement and (ii) six (6) months after the effective date of the Companys initial public offering of shares of Common Stock under a Registration Statement, a written request that the Company effect any Registration with respect to all or a part of the Registrable Securities on a form other than Form S-3 for an offering of at least thirty percent (30%) of the then outstanding Registrable Securities, or a lesser percentage if the reasonably anticipated aggregate offering price to the public (before deduction of underwriter discounts and commissions) is not less than Five Million Dollars ($5,000,000), the Company shall (i) promptly give written notice of the proposed Registration to all other Holders and shall (ii) use its best efforts to effect Registration of the Registrable Securities specified in such request, together with any Registrable Securities of any Holder joining in such request as are specified in a written request given within twenty (20) days after written notice from the Company. The Company shall not be obligated to take any action to effect any such Registration pursuant to this Section 3.1.1:
(i) at any such time as the Company has effected two (2) such Registrations in any twelve (12)-month period pursuant to this Section 3.1.1 and such Registrations have been declared effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, has kept effective for up to 120 days, or until the distribution described in such Registration Statement is completed, if earlier;
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(ii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the Registration Statement pertaining to any public offering, other than pursuant to a Special Registration Statement; provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such Registration Statement to become effective;
(iii) if within thirty (30) days of receipt of a written request from the Initiating Holders pursuant to Section 3.1.1, the Company gives notice to the Holders of the Companys intention to file a Registration Statement for a public offering, other than pursuant to a Special Registration Statement, within ninety (90) days; provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such Registration Statement to become effective; or
(iv) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 3.1.3 below.
3.1.2. Right of Deferral of Registration on Form other than Form S-3. If the Company shall furnish to all such Holders who joined in the request a certificate signed by the President of the Company stating that, in the good faith judgment of the Board, it would be seriously detrimental to the Company for any Registration to be effected as requested under Section 3.1.1, the Company shall have the right to defer the filing of a Registration Statement with respect to such offering for a period of not more than ninety (90) days from delivery of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12)-month period.
3.1.3. Request for Registration on Form S-3. Subject to the terms of this Agreement, in the event that the Company receives from one or more Holders a written request that the Company effect any Registration on Form S-3 (or any successor form to Form S-3 regardless of its designation) at a time when the Company is eligible to Register securities on Form S-3 (or any successor form to Form S-3 regardless of its designation) for an offering of Registrable Securities which such Holders in their good faith discretion determine would have an anticipated offering price to the public of at least One Million Dollars ($1,000,000), the Company will promptly give written notice of the proposed Registration to all the Holders and will as soon as practicable use its best efforts to effect Registration of the Registrable Securities specified in such request, together with all or such portion of the Registrable Securities of any Holder joining in such request as are specified in a written request delivered to the Company within thirty (30) days after written notice from the Company of the proposed Registration. There shall be no limit to the number of occasions on which the Company shall be obligated to effect Registration under this Section 3.1.3, but the Company shall not be required to effect more than two (2) such Registrations in any twelve (12)-month period. Notwithstanding the foregoing, the Company shall not be obligated to effect any Registration pursuant to this Section 3.1.3:
(i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than One Million Dollars ($1,000,000);
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(iii) if within fifteen (15) days of receipt of a written request from any Holder or Holders pursuant to this Section 3.1.3, the Company gives notice to such Holder or Holders of the Companys intention to make a public offering within ninety (90) days, other than pursuant to a Special Registration Statement; provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such Registration Statement to become effective; or
(iv) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that, in the good faith judgment of the Board, it would be seriously detrimental to the Company for any Registration to be effected as requested under Section 3.1.3, the Company shall have the right to defer the filing of a Registration Statement with respect to such offering for a period of not more than ninety (90) days from delivery of the request of the Holders requesting such Registration; provided, however, that the Company may not utilize this right more than once in any twelve (12)-month period.
3.1.4. Registration of Other Securities in Demand Registration. Any Registration Statement filed pursuant to the request of the Initiating Holders under this Section 3 may, subject to the provisions of Section 3.1.5, include securities of the Company other than Registrable Securities.
3.1.5. Underwriting in Demand Registration.
a. Notice of Underwriting.
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 a part of their request made pursuant to this Section 3.1, and the Company shall include such information in the written notice referred to in Section 3.1.1 or 3.1.3. In such event, the right of any Holder to Registration pursuant to Section 3 shall be conditioned upon such Holders agreement to participate in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting.
b. Inclusion of other Holders in Demand Registration.
If the Company, officers or directors of the Company holding Common Stock other than Registrable Securities or holders of securities issued by the Company other than Registrable Securities, request inclusion in such Registration, the Holders of a majority of the Registrable Securities to be Registered by the Holders in the applicable Registration, to the extent they deem advisable and consistent with the goals of such Registration, shall, on behalf of all Holders, offer to any or all of the Company, such officers or directors and such holders of securities other than Registrable Securities that such securities other than Registrable Securities be included in the underwriting and may condition such offer on the acceptance by such persons of the terms of this Section 3.1.
c. Selection of Underwriter in Demand Registration.
The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement with the representative (Underwriters Representative) of the underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities being Registered and agreed to by the Company.
d. Marketing Limitation in Demand Registration.
In the event the Underwriters Representative advises the Initiating Holders in writing that market factors (including, without limitation, the aggregate number of shares of
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Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, then (i) first the securities other than Registrable Securities and (ii) next the securities requested to be registered by the Company, shall be excluded from such Registration to the extent required by such limitation. If a limitation of the number of shares is still required, the Initiating Holders shall so advise all participating Holders and the number of shares of Registrable Securities that may be included in the Registration and underwriting shall be allocated among all participating Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities entitled to inclusion in such Registration held by such Holders at the time of filing the Registration Statement. No Registrable Securities or other securities excluded from the underwriting by reason of this Section 3.1.5(d) shall be included in such Registration Statement. To facilitate the allocation of shares in accordance with the above provisions, the Company or the Underwriters Representative may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
e. Right of Withdrawal in Demand Registration.
If any Holder of Registrable Securities, or a holder of other securities entitled (upon request) to be included in such Registration, disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders delivered at least seven (7) business days prior to the effective date of the Registration Statement. The securities so withdrawn shall also be withdrawn from the Registration Statement.
3.1.6. Blue Sky in Demand Registration. In the event of any Registration pursuant to Section 3.1, the Company will exercise its reasonable best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions (not exceeding twenty (20) at the expense of the Company) as shall be reasonably appropriate for the distribution of such securities; provided, however, that (i) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, and (ii) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling stockholders, such expenses shall be payable pro rata by selling stockholders.
3.2 Piggyback Registration.
3.2.1. Notice of Piggyback Registration and Inclusion of Registrable Securities. Subject to the terms of this Agreement, in the event the Company decides to Register any of its Common Stock (either for its own account or the account of a security holder or holders exercising their respective demand Registration rights) on a form (other than a Registration on Form S-4 and Form S-8, as those forms are issued by the Commission or any substantially similar forms then in effect) that would be suitable for a Registration involving solely Registrable Securities, the Company will: (i) promptly give each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable Blue Sky or other state securities laws) and (ii) include in such Registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request delivered to the Company by any Holder within fifteen (15) days after receipt of such written notice from the Company.
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3.2.2. Underwriting in Piggyback Registration.
a. Notice of Underwriting in Piggyback Registration.
If the Registration of which the Company gives notice pursuant to Section 3.2.1 is for a Registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.2.1. In such event the right of any Holder to Registration shall be conditioned upon such underwriting and the inclusion of such Holders Registrable Securities in such underwriting to the extent provided in this Section 3. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement with the Underwriters Representative for such offering. The Holders shall have no right to participate in the selection of the underwriters for an offering pursuant to this Section 3.2.
b. Marketing Limitation in Piggyback Registration.
In the event the Underwriters Representative advises the Holders seeking Registration of Registrable Securities pursuant to Section 3.2 in writing that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, the Underwriters Representative (subject to the allocation priority set forth in Section 3.2.2(c)) may:
i. in the case of the Companys initial Registered public offering, exclude some or all Registrable Securities from such Registration and underwriting; provided that no other stockholders securities are included in such offering; and
ii. in the case of any subsequent registered public offering, limit the number of shares of Registrable Securities to be included in such Registration and underwriting to not less than thirty percent (30%) of the securities included in such Registration (based on aggregate market values); provided that no other stockholders securities are included in such offering.
c. Allocation of Shares in Piggyback Registration.
In the event that the Underwriters Representative limits the number of shares to be included in a Registration pursuant to Section 3.2.2(b), the number of shares to be included in such Registration shall be allocated (subject to Section 3.2.2(b)) in the following manner: The number of shares, if any, that may be included in the Registration and underwriting by selling stockholders shall first be allocated among all the requesting Holders pro rata according to the respective amounts of Registrable Securities entitled to be included in such offering by such requesting Holders and then among all other holders of securities other than Registrable Securities requesting and legally entitled to include shares in such Registration, in proportion, as nearly as practicable, to the respective amounts of securities (including Registrable Securities) which such Holders and such other holders would otherwise be entitled to include in such Registration. No Registrable Securities or other securities excluded from the underwriting by reason of this Section 3.2.2(c) shall be included in the Registration Statement. To facilitate the allocation of shares in accordance with the above provisions, the Company or the Underwriters Representative may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
d. Withdrawal in Piggyback Registration.
If any Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter delivered at least seven (7) business days prior to the effective date of the Registration Statement. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such Registration.
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3.2.3. Blue Sky in Piggyback Registration. In the event of any Registration of Registrable Securities pursuant to Section 3.2, the Company will exercise its best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions (not exceeding twenty (20) unless otherwise agreed to by the Company) as shall be reasonably appropriate for the distribution of such securities; provided, however, that (i) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, and (ii) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling stockholders, such expenses shall be payable pro rata by selling stockholders.
3.3 Expenses of Registration. All Registration Expenses incurred in connection with two (2) Registrations pursuant to Section 3.1.1, all Registrations pursuant to Section 3.1.3 (Form S-3) and all Registrations pursuant to Section 3.2 shall be borne by the Company. All Registration Expenses incurred in connection with any other registration, qualification or compliance shall be apportioned among the Holders and other holders of the securities so registered on the basis of the number of shares so registered. Notwithstanding the above, the Company shall not be required to pay for any expenses of any Registration proceeding begun pursuant to Section 3.1 if the Registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be Registered (which Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one (1) demand Registration pursuant to Section 3.1; provided further, however, that if at the time of such withdrawal, (a) the Holders have learned of a Material Adverse Event not known to the Holders at the time of their request and (b) the Holders have withdrawn the request with reasonable promptness following disclosure by the Company of such Material Adverse Event, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 3.1. All Selling Expenses shall be borne by the respective holders of the securities Registered pro rata on the basis of the number of shares registered.
3.4 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 3, the Company will:
(a) | Keep each Holder whose Registrable Securities are included in any Registration pursuant to this Agreement advised as to the initiation and completion of such Registration. At its expense the Company will: (i) use its best efforts to keep such Registration effective for a period of one hundred twenty (120) days or until the Holder or Holders have completed the distribution described in the Registration Statement relating thereto, whichever first occurs; and (ii) furnish such number of prospectuses (including preliminary prospectuses) and other documents as a Holder from time to time may reasonably request. With respect to clause (i) of the preceding sentence, the Company may at any time upon written notice to the participating Holders and for a period not to exceed thirty (30) days thereafter (the Suspension Period) delay the filing or effectiveness of any Registration Statement or suspend the use or effectiveness of any Registration Statement (and the Holders hereby agree not to offer or sell any Registrable Securities pursuant to such Registration Statement during the Suspension Period) if the Company reasonably believes that the Company may, in the absence of such delay or suspension hereunder, be required under state or federal securities laws to disclose any corporate development the disclosure of which could reasonably be expected to have an adverse effect upon the |
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Company, its stockholders, a potentially significant transaction or event involving the Company, or any negotiations, discussions, or proposals directly relating thereto. In the event that the Company shall exercise its rights hereunder, the applicable time period during which the Registration Statement is to remain effective shall be extended by a period of time equal to the duration of the Suspension Period. The Company may extend the Suspension Period for an additional consecutive thirty (30) days with the consent of the Holders of a majority of the Registrable Securities proposed to be sold by the Holders in the applicable Registration, which consent shall not be unreasonably withheld. If so directed by the Company, the Holders shall use their best efforts to deliver to the Company (at the Companys expense) all copies, other than permanent file copies then in such Holders possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. |
(b) | Prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statements as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement for a period of up to one hundred twenty (120) days; |
(c) | Promptly notify each Holder of Registrable Securities covered by the Registration Statement at any time when the Company becomes aware of the happening of any event as a result of which the Registration Statement or the prospectus included in such Registration Statement or any supplement to the prospectus (as then in effect) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading or, if for any other reason it shall be necessary during such time period to amend or supplement the Registration Statement or the prospectus in order to comply with the Securities Act, whereupon, in either case, each Holder shall immediately cease to use such Registration Statement or prospectus for any purpose and, as promptly as practicable thereafter, the Company shall prepare and file with the Commission, and furnish without charge to the appropriate Holders and managing underwriters, if any, a supplement or amendment to such Registration Statement or prospectus which will correct such statement or omission or effect such compliance and such copies thereof as the Holders and any underwriters may reasonably request; |
(d) | Use its best efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions except as may be required by law; |
(e) | Cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed; |
(f) | Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; |
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(g) | 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 agreement; and |
(h) | Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 3, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 3, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the Registration Statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants 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, and to the Holders requesting registration of Registrable Securities (to the extent the then applicable standards of professional conduct permit said letter to be addressed to the Holders). |
3.5 Information Furnished by Holder. It shall be a condition precedent of the Companys obligations under Section 3 of this Agreement that each Holder of Registrable Securities included in any Registration furnish to the Company such information regarding such Holder and the distribution proposed by such Holder or Holders as the Company may reasonably request.
3.6 Indemnification.
3.6.1. Companys Indemnification of Holders. To the extent permitted by law, the Company will indemnify each Holder, each of its officers, directors, managers, stockholders, members, partners, legal counsel for the Holders and each person controlling such Holder (each, a Holder Indemnified Party), with respect to which Registration, qualification or compliance of Registrable Securities has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter (each, an Underwriter Indemnified Party), against all claims, losses, damages or liabilities (or actions in respect thereof) to the extent such claims, losses, damages or liabilities arise out of or are based upon any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement, prospectus, offering circular, or other document incident to any such Registration, qualification or compliance, or are based on 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, or any violation by the Company of any rule or regulation promulgated under the Securities Act or Exchange Act or state or federal law applicable to the Company and relating to action or inaction required of the Company in connection with any such Registration, qualification or compliance; and the Company will reimburse each such Holder Indemnified Party and Underwriter Indemnified Party for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 3.6.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); and provided, further, that the Company will not be liable in any such case to the extent that any such claim,
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loss, damage, liability or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to the Company by such Holder Indemnified Party and Underwriter Indemnified Party and stated to be for use in connection with the offering of securities of the Company to which such claim, loss, damage, liability or expense relates.
3.6.2. Holders Indemnification of Company. To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such Registration, qualification or compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors and officers that has signed the Registration Statement, each underwriter, if any, of the Companys securities covered by such a Registration Statement, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other such Holder, each of its officers, directors, partners and each person controlling such other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, prospectus, offering circular or other document incident to such Registration, qualification or compliance, or 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, or any violation by such Holder of any rule or regulation promulgated under the Securities Act or Exchange Act or state or federal law applicable to such Holder and relating to action or inaction required of such Holder in connection with any such Registration, qualification or compliance; and will reimburse the Company, such Holders, such directors, officers, partners, persons, underwriters or control persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use in connection with the offering of securities of the Company to which such claim, loss, damage, liability or expense relates; provided, however, that the indemnity contained in this Section 3.6.2 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of such Holder (which consent shall not unreasonably be withheld); and provided, further, that each Holders liability under this Section 3.6.2 shall be several, and not joint with other Holders, and shall not exceed such Holders net proceeds from the offering of securities made in connection with such Registration.
3.6.3. Indemnification Procedure. Promptly after receipt by an indemnified party under this Section 3.6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 3.6, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim; provided, however, that the indemnifying party shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld; provided further, however, that if either party reasonably determines that there may be a conflict between the position of the indemnifying party and the indemnified party in conducting the defense of such action, suit or proceeding by reason of recognized claims for indemnity under this Section 3.6, then counsel for such party shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interest of such party. The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to the ability of the indemnifying party to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 3.6, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise other than under this Section 3.6.
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3.6.4. Contribution. If the indemnification provided for in this Section 3.6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then 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, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided that, in no event shall any contribution by a Holder under this Subsection 3.6 exceed the net proceeds from the offering received by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the 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.
3.6.5. Underwriting Agreement. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
3.6.6. Survival. The obligations of the Company and Holders under this Section 3.6 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Section 3, and otherwise. No indemnifying party, in defense of any claim of litigation set forth under this Section 3.6, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
3.7 Limitations on Registration Rights Granted to Other Securities. From and after the date of this Agreement, the Company shall not enter into any other agreement with any holder or prospective holder of any securities of the Company providing for the granting to such holder of any information or Registration rights, except that, with the consent of the Holders of at least a majority of the Registrable Securities then outstanding, additional holders may be added as parties to this Agreement with regard to any or all securities of the Company held by them. Any such additional parties shall execute a counterpart of this Agreement, and upon execution by such additional parties and by the Company, shall be considered an Investor for all purposes of this Agreement. The additional parties and the additional Registrable Securities shall be identified in an amendment to Schedule A hereto.
3.8 Transfer of Rights. The right to cause the Company to Register securities granted by the Company to the Investors under Sections 3.1 and 3.2 may be assigned by any Holder to a transferee or assignee of any Preferred Stock or Registrable Securities not sold to the public acquiring at least twenty percent (20%) of such Holders Registrable Securities (equitably adjusted for all stock splits, subdivisions, stock dividends, combinations and the like); provided, however, that the Company must receive written notice prior to the time of said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such rights are being assigned. Notwithstanding the limitation set forth in the foregoing sentence respecting the minimum amount of shares which must be transferred, (a) any Holder which is a partnership may transfer such Holders rights to such Holders constituent partners, retired partners (including spouses, ancestors, lineal descendants and siblings of such partners or spouses who acquire Preferred Stock or Registrable Securities by gift, will or intestate succession), (b) any Holder which is a natural person may transfer such Holders rights to any immediate family member, niece or nephew or to any trust created for the benefit of such Holder or his or her immediate family members, nieces or nephews, and (c) any Holder may transfer such Holders
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rights to an Affiliate, subject in each case to such transferees agreeing to be bound by the rights and restrictions of this Agreement. The rights under Sections 4 and 5 may be assigned by an Investor only as provided in such Sections.
3.9 Market Stand-off. If requested in writing by the Company or the underwriters for the initial public offering of the Companys Common Stock, each holder of Registrable Securities who is a party to this Agreement shall agree not to sell publicly any shares of Registrable Securities or any other securities of the Company (other than shares of Registrable Securities or other securities of the Company being registered in such offering), without the consent of the Company or such underwriters, for a period of not more than one hundred eighty (180) days following the effective date of the Registration Statement relating to such offering (or such other period as may be reasonably requested by the underwriters to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto); provided, however, that the Company shall use commercially reasonable efforts to convince such managing underwriters to allow for alternative means of liquidity for the holders if, in the opinion of such managing underwriters, such liquidity can be provided without an adverse impact on such initial public offering; and, provided, further, however, that all persons entitled to registration rights with respect to shares of Common Stock who are not parties to this Agreement, all other persons selling shares of Common Stock in such offering and all executive officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities shall also have agreed not to sell publicly their Common Stock under the circumstances and pursuant to the terms set forth in this section. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company, or the Companys underwriters, which are consistent with the foregoing, or which are reasonably necessary to give further effect thereto.
3.10 No-Action Letter or Opinion of Counsel in Lieu of Registration; Conversion of Registrable Securities. Notwithstanding anything else in this Agreement, if the Company shall have obtained from the Commission a no-action letter in which the Commission has indicated that it will take no action if, without Registration under the Securities Act, any Holder disposes of Registrable Securities covered by any request for Registration made under this Agreement in the specific manner in which such Holder proposes to dispose of the Registrable Securities included in such request (such as including, without limitation, the inclusion of such Registrable Securities in an underwriting initiated by either the Company or the Holders), or if in the opinion of counsel for the Company concurred in by counsel for such Holder, which concurrence shall not be unreasonably withheld, no Registration under the Securities Act is required in connection with such disposition, the shares included in such request shall not be eligible for Registration under this Agreement; provided, however, that any Registrable Securities not so disposed of shall be eligible for Registration in accordance with the terms of this Agreement with respect to other proposed dispositions to which this Section 3.10 does not apply. The Registration rights of the Holders of Preferred Stock set forth in this Agreement are conditioned upon the conversion of the Preferred Stock with respect to which Registration is sought into Common Stock prior to the effective date of the Registration Statement.
3.11 Sale of Preferred Stock to Underwriter. Notwithstanding any provision in this Agreement to the contrary, in lieu of converting any Preferred Stock prior to the filing of any Registration Statement filed pursuant to this Agreement, the holder of such Preferred Stock may sell such Preferred Stock to the underwriters of the offering being Registered upon the undertaking of such underwriters to convert the Preferred Stock on or prior to the closing date of the offering. If and when the Preferred Stock are converted in accordance with their applicable terms and conditions, the Company agrees to cause the Common Stock issuable on the conversion of the Preferred Stock to be issued within such time period as will permit the underwriters to make and complete the distribution contemplated by the underwriting.
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3.12 Rule 144 Requirements. Immediately after the date on which a Registration Statement filed by the Company under the Securities Act becomes effective, the Company agrees to make and keep publicly available, and available to the Holders of Registrable Securities, such information as is necessary to enable the holders of Registrable Securities to make sales of Registrable Securities pursuant to Rule 144 of the Commission under the Securities Act. The Company shall furnish to any holder of Registrable Securities, upon request, a written statement executed by the Company that it has complied with the current public information requirements of Rule 144, and if it has not so complied, an explanation of any non-compliance.
3.13 Termination of Company Agreements. The Registration rights set forth in Sections 3.1 and 3.2 shall terminate seven (7) years after the effective date of the Companys Registration Statement filed in connection with the Companys first Qualified Public Offering or, as to any Holder, at any time following the effective date of the Companys first Qualified Public Offering, when such Holder is entitled to sell all of such Investors Registrable Securities pursuant to Rule 144 of the Commission under the Securities Act during any three-month period.
SECTION 4. RIGHT OF FIRST REFUSAL
4.1 Right of First Refusal. The Company hereby grants to each Major Investor the right of first refusal to purchase such Major Investors pro rata share of New Securities (as defined in Section 4.2) which the Company may from time to time propose to sell and issue (the Right of First Refusal). For purposes of the Right of First Refusal, a Major Investors pro rata share (the Pro Rata Share) shall be determined as follows: a Major Investors pro rata share shall be equal to that number or amount of New Securities to be sold multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock issued or issuable to such Major Investor upon conversion of all Preferred Stock owned by such Major Investor (including any shares of Common Stock issued as, or issuable upon the conversion or exercise of any warrant, right or other security that is issued as, a dividend or other distribution with respect to, or in exchange for, or in replacement of, such Preferred Stock) and the denominator of which shall be the total number of shares of the Companys Common Stock deemed to be outstanding assuming the conversion of all outstanding Preferred Stock. Notwithstanding the foregoing, any Major Investor may, at the time it accepts the Companys offer, subscribe to purchase any or all of the securities offered (Oversubscription Securities) which may be available as a result of the rejection, or partial rejection, of the offer by other Investors. All such Oversubscription Securities shall be allocated on a pro rata basis among those Major Investors subscribing to purchase them. Notwithstanding the foregoing, the Company shall not be required to offer or sell such New Securities to any Major Investor who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. The Right of First Refusal shall be subject to the following provisions:
4.2 Definition of New Securities. New Securities shall mean any shares of Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options, or warrants to purchase such shares of Common Stock or Preferred Stock, and all other securities having equity features, such as convertible notes or notes issued in conjunction with options or warrants; provided that New Securities shall not include:
(a) | securities issued upon the conversion of any Preferred Stock, bonds, debentures, notes or other evidences of indebtedness, and any options, warrants, shares or any other securities convertible into, exercisable for, or exchangeable for Common Stock, in each case outstanding on the date hereof or subsequently issued after the date hereof in accordance with the exceptions to New Securities set forth in this Section 4.2. |
16
(b) | securities issued or sold pursuant to (i) the Purchase Agreement or (ii) the Companys 2006 Equity Incentive Plan as in effect on the date hereof and as may be amended from time to time with the approval of the Board of Directors, including a majority of the Preferred Directors. |
(c) | securities issued to effect any stock split, stock dividend or recapitalization of the Company; |
(d) | securities issued as a dividend on the Companys stock; |
(e) | securities issued to the Companys employees or officers or directors or outside consultants or contractors pursuant to a plan, agreement or arrangement (including the reissuance of shares repurchased by the Company from employees or consultants of the Company) in each case to the extent duly approved by the Board, including a majority of the Preferred Directors; |
(f) | securities issued to lenders, financial institutions, equipment lessors, or real estate lessors to the Company in connection with a bona fide borrowing or leasing transaction approved by the Board, including a majority of the Preferred Directors; |
(g) | securities issued pursuant to (i) the acquisition of another business by the Company by merger, purchase of substantially all of the assets or shares, or other reorganization whereby the Company or its stockholders own not less than a majority of the voting power of the surviving or successor business or (ii) the acquisition of technology or other intellectual property by outright purchase or (iii) a bona fide license of intellectual property, whether an in-license or out-license of such intellectual property, in each case on terms approved by the Board, including a majority of the Preferred Directors; |
(h) | securities issued to vendors, suppliers, customers, service providers or other persons affiliated with such organizations with which the Company has a commercial relationship on terms approved by the Board, including a majority of the Preferred Directors; |
(i) | securities issued (i) in a public offering before or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock or (ii) to underwriters in connection with such a public offering, in each case on terms approved by the Board, including a majority of the Preferred Directors; and |
(j) | any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (a) through (i) above. |
4.3 Notices. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Major Investor written notice (the Notice) of its intention, describing the type of New Securities, the price, and the principal terms upon which the Company proposes to issue the same. Each Major Investor shall have twenty (20) days from the delivery of the Notice to agree to purchase up to the Major Investors Pro Rata Share for the price and upon the terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. In the event any of the Major Investors do not subscribe to purchase its Pro Rata Share, the Company will promptly
17
provide an additional notice to the Major Investors who have subscribed to purchase their Pro Rata Shares as to the amount of Oversubscription Securities (the Oversubscription Notice). Each such Major Investor shall have ten (10) days from the delivery of such Oversubscription Notice to agree to purchase the Oversubscription Securities up to the amount set forth in such Major Investors written notice to the Company, and the exact amount to be purchased by each such Major Investor shall be determined in accordance with Section 4.1 hereof.
4.4 Failure to Exercise Right. In the event a Major Investor does not elect to purchase all of such Major Investors Pro Rata Share of the New Securities pursuant to Section 4.1 and such New Securities are not purchased by other Major Investors, the Company shall have forty five (45) days after the last date on which any Major Investors right to purchase lapsed to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) days from the date of said agreement) to sell any unsubscribed portion of the New Securities at or above the price and upon terms not materially more favorable to the purchasers of such securities than the terms specified in the initial Notice given in connection with such sale. In the event the Company has not sold the New Securities within said 45-day period (or sold and issued New Securities in accordance with the foregoing within sixty (60) days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities without first offering such New Securities to the Major Investors in the manner provided in this Section 4.
4.5 Rights of Affiliated Investors. For the purposes of this Section 4, Investors who are Affiliates of one or more other Investors shall, at the election of an Investor and one or more such Affiliates, be treated as a group (an Investor Group). Members of an Investor Group shall have the right to reallocate the rights granted by this Section 4 among themselves as they determine.
4.6 Assignment. The Right of First Refusal set forth in this Section 4 may not be assigned or transferred, except that each Investor shall have the right to assign its right to purchase securities under this Section 4 to any Affiliate of such Investor; provided such Affiliate agrees in writing with the Company and the Investors, prior to and as a condition precedent to such transfer, to be bound by all the provisions of Sections 3.9, 5 and 6 of this Agreement.
4.7 Termination. The Right of First Refusal granted under this Section 4 shall not apply to, and shall terminate on and be of no further force or effect upon the effective date of the Companys Registration Statement filed in connection with the Companys first Qualified Public Offering.
SECTION 5. MISCELLANEOUS.
5.1 Entire Agreement; Successors and Assigns. This Agreement constitutes the entire contract between the Company and the Investors relative to the subject matter hereof. Any previous agreement between the Company, the Investors and the Holders concerning Registration rights, is superseded by this Agreement, and upon execution and delivery of this Agreement by the parties hereto, the Prior Agreement shall be of no further force and effect and is hereby amended and restated as set forth herein. Subject to the exceptions specifically set forth in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successors and assigns of the parties.
5.2 Aggregation of Stock. All Preferred Stock and Registrable Securities held or acquired by affiliated entities or persons shall be aggregate together for the purpose of determining the availability of any rights under this Agreement.
18
5.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS ENTERED INTO AND WHOLLY TO BE PERFORMED WITHIN THE STATE OF CALIFORNIA BY CALIFORNIA RESIDENTS.
5.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
5.5 Headings. The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement.
5.6 Notices. Any notice required or permitted hereunder shall be given in writing and shall be conclusively deemed effectively given upon personal delivery, or five (5) days after deposit in the United States mail, by registered or certified mail (or airmail, if notice shall be sent outside the United States), postage prepaid, or five (5) days after delivery to a nationally known air courier company, addressed (i) if to the Company, to the Companys address as set forth below the Companys name on the signature page of this Agreement and (ii) if to an Investor, to such Investors address as set forth on the signature page of this Agreement, or at such other address as the Company or such Investor may designate by ten (10) days, advance written notice to the other parties hereto.
5.7 Amendment of Agreement; Waivers. Subject to Section 3.7, any provision of this Agreement may be amended or waived by a written instrument signed by the Company and by the Holders of at least (i) a majority of the Registrable Securities and (ii) a majority of the Preferred Stock then outstanding; provided, however, that with respect to any amendment or waiver adversely affecting the rights hereunder of the Preferred Stockholders of any class or series of Preferred Stock in a manner that is different in any material respect from the manner in which the rights hereunder of the Preferred Stockholders of any other class or series of Preferred Stock are being adversely affected by such amendment or waiver, then the consent of the Holders of (x) at least a majority of the issued and outstanding shares of Series A Preferred Stock and (y) at least 66.67% of the issued and outstanding shares of Series B Preferred Stock is required to effect such amendment or waiver. Any amendment or waiver effected in accordance with Section 3.7 or this Section 5.7 shall be binding upon the Company and all Holders and each of their respective successors and assigns.
5.8 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of its Series B Preferred Stock pursuant to the Purchase Agreement, any purchaser of such shares of Series B Preferred Stock shall become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an Investor hereunder and Schedule A shall be amended accordingly.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
COMPANY: | ||
CONATUS PHARMACEUTICALS INC. | ||
By: | /s/ Steven J. Mento | |
Name: | Steven J. Mento, Ph.D. | |
Title: | President and Chief Executive Officer |
Address: | 4365 Executive Drive, Suite 200 | |
San Diego, California 92121 | ||
Fax No.: (858) 558-8920 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
AGECHEM VENTURE FUND L.P. | ||
By: | /s/ Louis Lacasse | |
Name: | Louis Lacasse | |
Title: |
Address: | 1001 De Maisonneuve Blvd. West Suite 920 Montreal, Quebec H3A 3C8 Canada |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
ABERDARE VENTURES III, L.P., a Delaware limited partnership | ||||
By: | Aberdare GP III, L.L.C., | |||
Its General Partner | ||||
By: | /s/ Paul H. Klingestein | |||
Name: | Paul H. Klingenstein | |||
Title: | Manager | |||
ABERDARE PARTNERS III, L.P., a Delaware limited partnership | ||||
By: | Aberdare GP III, L.L.C., | |||
Its General Partner | ||||
By: | /s/ Paul H. Klingestein | |||
Name: | Paul H. Klingenstein | |||
Title: | Manager |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
ADVENT PRIVATE EQUITY FUND III A | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund III A | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 25 Buckingham Gate | |||
London, United Kingdom | ||||
SW1E 6LD | ||||
ADVENT PRIVATE EQUITY FUND III B | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund III B | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 25 Buckingham Gate | |||
London, United Kingdom | ||||
SW1E 6LD | ||||
ADVENT PRIVATE EQUITY FUND III C | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund III C | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 25 Buckingham Gate | |||
London, United Kingdom | ||||
SW1E 6LD |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
ADVENT PRIVATE EQUITY FUND III D | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund III D | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 25 Buckingham Gate | |||
London, United Kingdom | ||||
SW1E 6LD | ||||
ADVENT PRIVATE EQUITY FUND III GmbH & Co KG | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund III GmbH & Co. KG | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | Theresienstrasse 6 | |||
Munich 80333, Germany | ||||
ADVENT PRIVATE EQUITY FUND III AFFILIATES | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund III Affiliates | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 25 Buckingham Gate | |||
London, United Kingdom | ||||
SW1E 6LD |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
ADVENT MANAGEMENT III LIMITED PARTNERSHIP | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Management III Limited Partnership | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 50 Lothian Road | |||
Festival Square | ||||
Edinburgh, EH3 9WJ | ||||
ADVENT PRIVATE EQUITY FUND IV | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Private Equity Fund IV | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 25 Buckingham Gate | |||
London, United Kingdom | ||||
SW1E 6LD | ||||
ADVENT MANAGEMENT IV LIMITED PARTNERSHIP | ||||
By: | Advent Venture Partners LLP, | |||
Acting in its capacity as Manager of Advent Management IV Limited Partnership | ||||
By: | /s/ L. Gabb | |||
Name: | L. Gabb | |||
Title: | Partner | |||
Address: | 50 Lothian Road | |||
Festival Square | ||||
Edinburgh, EH3 9WJ |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
BAY CITY CAPITAL MANAGEMENT IV, LLC | ||||
GENERAL PARTNER OF: | ||||
BAY CITY CAPITAL FUND IV CO-INVESTMENT FUND, L.P. | ||||
BY: | BAY CITY CAPITAL LLC, ITS MANAGER | |||
By: | /s/ Carl Goldfischer | |||
Name: | Carl Goldfischer | |||
Title: | Manager and Managing Director | |||
BAY CITY CAPITAL MANAGEMENT IV, LLC | ||||
GENERAL PARTNER OF: | ||||
BAY CITY CAPITAL FUND IV, L.P. | ||||
BY: | BAY CITY CAPITAL LLC, ITS MANAGER | |||
By: | /s/ Carl Goldfischer | |||
Name: | Carl Goldfischer | |||
Title: | Manager and Managing Director |
Address: | 750 Battery Street, Suite 400 | |||
San Francisco, CA 94111 | ||||
Fax No.: (415) 837-0503 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
STEVEN J. MENTO AND LINDA A. MENTO AS TRUSTEES UNDER THE MENTO FAMILY TRUST DATED DECEMBER 29, 1994 | ||
By: | /s/ Steven J. Mento | |
Steven J. Mento, Trustee |
Address: | 16036 Country Day Road | |
Poway, CA 92064 | ||
Fax No.: (858) 673-5385 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
CHARLES J. CASHION AND MARTHA DIANE CASHION, AS TRUSTEE UDT (UNDER DECLARATION OF TRUST) DATED JULY 27, 1988, WHEREIN CHARLES J. CASHION AND MARTHA DIANE CASHION ARE TRUSTORS, OR ANY SUCCESSOR TRUSTEE THEREUNDER | ||||
By: | /s/ Charles J. Cashion, Trustee | |||
Name: | Charles J. Cashion | |||
Title: | Trustee | |||
By: | /s/ Martha Diane Cashion, Trustee | |||
Name: | Martha Diane Cashion | |||
Title: | Trustee |
Address: | 18778 Olmeda Place | |||
San Diego, CA 92128 | ||||
Fax No.: (858) 558-8920 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
ALFRED P. SPADA, JR. AND JANICE SPADA, TRUSTEES, U.D.T. DATED FEBRUARY 6, 2007, THE ALFRED AND JANICE SPADA FAMILY TRUST | ||||
By: | /s/ Alfred P. Spada | |||
Name: | Alfred P. Spada, Ph.D. | |||
Title: | Trustee | |||
By: | /s/ Janice Spada | |||
Name: | Janice Spada | |||
Title: | Trustee |
Address: | 2891 Camino Serbal | |||
Carlsbad, CA 92009 | ||||
Fax No.: (858) 558-8920 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||||
THE PAUL E. CAYER AND JENNIFER G. CAYER TRUST DATED MARCH 1, 2005 | ||||
By: | /s/ Jennifer Cayer | |||
Name: | Jennifer Giottonini Cayer | |||
Title: | Trustee |
Address: | PO Box 3362 | |||
Rancho Santa Fe, CA 92067 | ||||
Fax No.: (858) 558-8920 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
HALE BIOPHARMA VENTURES LLC | ||
By: | /s/ David F. Hale | |
Name: | David F. Hale | |
Title: | Chief Executive Officer |
Address: | 1042-B N. El Camino Real, Suite 430 | |
Encinitas, California 92024-1322 | ||
Fax No.: (858) 756-3567 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
COÖPERATIEVE GILDE HEALTHCARE II U.A. | ||
By: | /s/ Marc Oliver Perret /s/ Edwin de Graaf | |
Name: | Marc Oliver Perret/Edwin de Graaf | |
Title: | General Partners |
Address: | Newtonlaan 91 | |
P.O. Box 85067 | ||
3508 AB Utrecht | ||
The Netherlands |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
ROCHE HOLDINGS, INC. a Delaware corporation | ||
By: | /s/ Frank J. DAngelo | |
Name: | Frank J. DAngelo | |
Title: | VP & General Manager |
Address: | 340 Kingsland Street | |
Nutley, NJ 07110 | ||
FedEx: | 150 Clove Road | |
8th Floor | ||
Little Falls, NJ 07424 |
ROCHE FINANCE LTD a Swiss company | ||
By: | /s/ Andreas Knierzinger | |
Name: | Andreas Knierzinger | |
Title: | ||
By: | /s/ Carole Nuechterlein | |
Name: | Carole Nuechterlein | |
Title: | Authorized signatories |
Address: | Grenzacherstrasse 122 | |
Basel, Switzerland 4070 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
VP COMPANY INVESTMENTS 2004, LLC | ||
By: | /s/ David Raab | |
Name: | David Raab | |
Title: | Member of Management Committee |
Address: | 555 W. Fifth Street, Suite 800 | |
Los Angeles, California 90013-1010 | ||
Attention: Grant Johnson | ||
Fax No.: (213) 891-7123 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
By: | /s/ Scott N. Wolfe | |
SCOTT N. WOLFE |
Address: | c/o Latham & Watkins LLP | |
12636 High Bluff Dr., Suite 400 | ||
San Diego, CA 92130 | ||
Fax No.: (858) 523-5450 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
FAYE HUNTER RUSSELL TRUST U/T/D 7/11/88 | ||
By: | /s/ Faye H. Russell | |
Name: | Faye Hunter Russell | |
Title: | Trustee |
Address: | c/o Latham & Watkins LLP | |
12636 High Bluff Dr., Suite 400 | ||
San Diego, CA 92130 | ||
Fax No.: (858) 523-5450 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
INVESTORS: | ||
By: | /s/ Cheston J. Larson | |
CHESTON J. LARSON |
Address: | c/o Latham & Watkins LLP | |
12636 High Bluff Dr., Suite 400 | ||
San Diego, CA 92130 | ||
Fax No.: (858) 523-5450 |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 29th day of March, 2011.
INVESTORS: | ||
MPM BIOVENTURES IV-QP, L.P. | ||
By: | MPM BIOVENTURES IV GP LLC, its General Partner | |
By: | MPM BIOVENTURES IV LLC, its Managing Member | |
By: | /s/ James P. Spada | |
Name: | James P. Spada | |
Title: | Member | |
MPM BIOVENTURES IV GMBH & CO. BETEILIGUNGS KG | ||
By: | MPM BIOVENTURES IV GP LLC, in its capacity as the Managing Limited Partner | |
By: | MPM BIOVENTURES IV LLC, its Managing Member | |
By: | /s/ James P. Spada | |
Name: | James P. Spada | |
Title: | Member | |
MPM ASSET MANAGEMENT INVESTORS BV4 LLC | ||
By: | MPM BIOVENTURES IV LLC, its Manager | |
By: | /s/ James P. Spada | |
Name: | James P. Spada | |
Title: | Member | |
MPM BIOVENTURES V, L.P. | ||
By: | MPM BIOVENTURES V GP LLC, its General Partner | |
By: | MPM BIOVENTURES V LLC, its Managing Member | |
By: | /s/ James P. Spada | |
Name: | James P. Spada | |
Title: | Member |
CONATUS PHARMACEUTICALS INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
SCHEDULE A
INVESTORS
AGECHEM VENTURE FUND L.P.
ABERDARE VENTURES III, L.P.
ABERDARE PARTNERS III, L.P.
ADVENT PRIVATE EQUITY FUND IV
ADVENT MANAGEMENT IV L.P.
ADVENT PRIVATE EQUITY FUND III A
ADVENT PRIVATE EQUITY FUND III B
ADVENT PRIVATE EQUITY FUND III C
ADVENT PRIVATE EQUITY FUND III D
ADVENT PRIVATE EQUITY FUND III GMBH & CO KG
ADVENT PRIVATE EQUITY FUND III AFFILIATES
ADVENT MANAGEMENT III LP
BAY CITY CAPITAL FUND IV CO-INVESTMENT FUND, L.P. BAY CITY CAPITAL FUND IV, L.P. COÖPERATIEVE GILDE HEALTHCARE II U.A. STEVEN J. MENTO AND LINDA A. MENTO AS TRUSTEES UNDER THE MENTO FAMILY TRUST DATED DECEMBER 29, 1994
CHARLES J. CASHION AND MARTHA DIANE CASHION, AS TRUSTEE UDT (UNDER DECLARATION OF TRUST) DATED JULY 27, 1988, WHEREIN CHARLES J. CASHION AND MARTHA DIANE CASHION ARE TRUSTORS, OR ANY SUCCESSOR TRUSTEE THEREUNDER
ALFRED P. SPADA, JR. AND JANICE SPADA, TRUSTEES, U.D.T. DATED FEBRUARY 6, 2007, THE ALFRED AND JANICE SPADA FAMILY TRUST
THE PAUL E. CAYER AND JENNIFER G. CAYER TRUST DATED MARCH 1, 2005
HALE BIOPHARMA VENTURES LLC |
ROCHE HOLDINGS, INC.
ROCHE FINANCE LTD
VP COMPANY INVESTMENTS 2004, LLC
SCOTT N. WOLFE
FAYE HUNTER RUSSELL TRUST U/T/D 7/11/88
CHESTON J. LARSON
MPM BIOVENTURES IV-QP, L.P.
MPM BIOVENTURES IV GMBH & CO. BETEILIGUNGS KG
MPM ASSET MANAGEMENT INVESTORS BV4 LLC
MPM BIOVENTURES V, L.P. |
Exhibit 4.3
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT). THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA OR ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 2511, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE OR SUCH PROVISIONS OF THE CORPORATIONS CODE OF ANY SUCH OTHER STATE. THE RIGHTS OF THE HOLDER OF THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
Void after |
, 2020 |
WARRANT TO PURCHASE SHARES
OF SERIES A PREFERRED STOCK
of
CONATUS PHARMACEUTICALS INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, , together with its permitted successors and assigns (Holder) is entitled, subject to the terms set forth below, to subscribe for and purchase shares of $0.0001 par value Series A Preferred Stock (the Series A Preferred Stock) of CONATUS PHARMACEUTICALS INC., a Delaware corporation (the Company), subject to adjustment as provided herein. This warrant and any warrant subsequently issued upon exchange or transfer hereof are hereinafter referred to collectively as the Warrant.
This Warrant is subject to the following terms and conditions:
1. Senior Secured Convertible Promissory Note. This Warrant is issued in connection with that certain Senior Secured Convertible Promissory Note dated , 2010 (the Note) by the Company in favor of Holder. All capitalized terms used but not defined in this Warrant shall have the meanings ascribed thereto in the Note.
2. Exercise of Warrant. The terms and conditions upon which this Warrant may be exercised, and the shares covered hereby may be purchased, are as follows:
2.1 Term. Subject to the terms hereof and unless sooner terminated as provided below in Section 6.3, this Warrant may be exercised at any time after the date hereof, or from time to time, in whole or in part; provided, however, that in no event may this Warrant be exercised (the Exercise Date) later than 5:00 p.m. (Pacific Time) on the close of business on , 2020 (the Exercise Period).
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2.2 Number of Series A Preferred Stock Shares. This Warrant may be exercised for ( ) shares of Series A Preferred Stock, subject to adjustment as provided herein.
2.3 Exercise Price. The Exercise Price shall be $0.01 per share.
2.4 Method of Exercise. Subject to the terms and conditions contained herein and while this Warrant remains outstanding and exercisable, this Warrant is exercisable with respect to any or all of the shares of Series A Preferred Stock, at the option of Holder, upon surrender of this Warrant to the Company together with (a) a duly completed (i) Notice of Exercise, in the form attached hereto as Exhibit A, or (ii) Net Issue Election Notice, in the form attached hereto as Exhibit B and (b) payment of an amount equal to the Exercise Price multiplied by the number of shares of Series A Preferred Stock with respect to which this Warrant is being exercised as provided in Section 2.5 below. If Holder exercises this Warrant with respect to less than all of the shares of Series A Preferred Stock represented by this Warrant, the Company shall cancel this Warrant upon the surrender thereof and shall execute and deliver to Holder a new Warrant for the balance of such shares of Series A Preferred Stock.
2.5 Payment. Payment of the Exercise Price for the shares of Series A Preferred Stock with respect to which this Warrant is being exercised by Holder shall be made, at the option of Holder, (a) by delivery of cash payable by wire transfer of immediately available funds, (b) by the delivery of a cashiers check or certified check, (c) by net issue election as set forth in Section 2.6 below, or (d) by any combination of (a) (c).
2.6 Net Issue Election Holder may elect to receive, without payment by Holder of any additional consideration, shares of Series A Preferred Stock equal to the value of the spread on the shares of Series A Preferred Stock or any portion thereof by the surrender of the Warrant to the Company, together with a duly completed Net Issue Election Notice, in the form attached hereto as Exhibit B, at the principal office of the Company, in which event the Company shall issue to Holder such number of shares of Series A Preferred Stock as is computed using the following formula, rounded down to the nearest whole share:
X = Y (A B) | ||||
A |
Where: | X = | The number of shares of Series A Preferred Stock to be issued to Holder pursuant to the net issue election; | ||
Y = | The number of shares of Series A Preferred Stock in respect of which the net issue election is made; | |||
A = | The fair market value (as determined below) of one share of Series A Preferred Stock at the time the net issue election is made; and | |||
B = | The Exercise Price in effect under this Warrant as of the date of the net issue election. |
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For purposes of this Section 2.6, the fair market value of one share of Series A Preferred Stock as of a particular date shall be as determined in good faith by the Board of Directors of the Company.
3. Adjustment of Exercise Price and Number of Shares. The Exercise Price and the number of shares of Series A Preferred Stock purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows:
3.1 Conversion of Series A Preferred Stock into Common Stock. Upon conversion of all of the issued and outstanding shares of the Companys Series A Preferred Stock into shares of the Companys Common Stock (Common Stock), this Warrant shall be automatically exercisable only for such number of shares of Common Stock as Holder would have received had this Warrant been exercised in full for the shares of Series A Preferred Stock and then converted into Common Stock on the date all issued and outstanding shares of the Companys Preferred Stock converted into Common Stock. The Exercise Price in effect immediately prior to such conversion shall, concurrently with the effectiveness of such conversion, be proportionally adjusted. Upon such conversion of the Preferred Stock into Common Stock, all references under this Warrant to shares of Series A Preferred Stock shall be deemed references to Common Stock.
3.2 Split, Subdivision or Combination. If the Company should at any time or from time to time fix a record date for (a) the effectuation of a split or subdivision of the outstanding shares of Series A Preferred Stock or (b) the determination of Holders of Series A Preferred Stock entitled to receive a dividend or other distribution payable in additional shares of Series A Preferred Stock or other securities or rights convertible into, or entitling Holder thereof to receive directly or indirectly, additional shares of Series A Preferred Stock (hereinafter referred to as the Series A Equivalents), without payment of any consideration by such holder for the additional shares of Series A Preferred Stock or Series A Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of shares of Series A Preferred Stock which this Warrant is exercisable for, if any, shall be appropriately increased in proportion to such increase of outstanding shares. Notwithstanding the foregoing, in any such case, the aggregate purchase price payable by Holder for the total number of shares of Series A Preferred Stock (as adjusted) shall remain the same.
3.3 Combination of Shares. If the number of shares of Series A Preferred Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares Series A Preferred Stock, the Exercise Price shall be appropriately increased and the number of shares of Series A Preferred Stock for which this Warrant is exercisable, if any, shall be appropriately decreased in proportion to such decrease in outstanding shares. Notwithstanding the foregoing, in any such case, the aggregate purchase price payable by Holder for the total number of shares of Series A Preferred Stock (as adjusted) shall remain the same.
3.4 Reclassification or Reorganization. If the shares of Series A Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision, conversion or combination of shares or stock dividend provided for in Sections 3.1, 3.2 and 3.3
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above), then and in each such event Holder shall be entitled to receive upon the exercise of this Warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, to which a holder of the number of shares of Series A Preferred Stock (or any shares of stock or other securities which may be) issuable upon the exercise of this Warrant would have received if this Warrant had been exercised immediately prior to such reorganization, reclassification or other change, all subject to further adjustment as provided herein. At the request of Holder, this Warrant will thereupon be cancelled and upon its surrender to the Company, the Company will execute and deliver at its expense a new Warrant reflecting the foregoing adjustment, but otherwise identical to the replaced Warrant.
3.5 Notice of Adjustments and Record Dates. The Company shall promptly notify Holder in writing of each adjustment or readjustment of the Exercise Price hereunder and the number of shares of Series A Preferred Stock issuable upon the exercise of this Warrant. Such notice shall state the adjustment or readjustment and show in reasonable detail the facts on which that adjustment or readjustment is based. In the event of any taking by the Company of a record of holders of shares of Series A Preferred Stock for the purpose of determining holders thereof who are entitled to receive any dividend or other distribution, the Company shall notify Holder in writing of such record date at least twenty (20) days prior to the date specified therein.
3.6 Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All shares of Series A Preferred Stock (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of a fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of a share of Series A Preferred Stock by such fraction.
3.7 Issue Tax. The issuance of certificates for the shares of Series A Preferred Stock upon exercise of this Warrant shall be made without charge to Holder for any issuance tax in respect thereof provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of Holder.
3.8 No Impairment. The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that all shares of Series A Preferred Stock as may be issued pursuant to the exercise of this Warrant shall, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
4. Replacement of Warrants. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity
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agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense shall execute and deliver to Holder, in lieu thereof, a new Warrant of like tenor.
5. No Rights or Liability as a Stockholder. This Warrant does not entitle Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by Holder to purchase shares of Series A Preferred Stock, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder as a shareholder of the Company.
6. Miscellaneous.
6.1 Limitations on Disposition. Holder agrees not to make any disposition of this Warrant or any shares of Series A Preferred Stock, unless and until (i) the transferee has agreed in writing for the benefit of the Company to be bound by this Section 6.1 and the other provisions of this Warrant as if such transferee were the original Holder hereof, provided and to the extent such provisions are then applicable, and (ii) such transfer is in compliance with all applicable securities laws.
6.2 Early Termination. In the event of, at any time during the Exercise Period, an initial public offering of securities of the Company registered under the Securities Act, or any capital reorganization, or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another corporation (other than a merger solely to effect a reincorporation of the Company into another state), or the sale or other disposition of all or substantially all the properties and assets of the Company in its entirety to any other person, the Company shall provide to Holder ten (10) days advance written notice of such public offering, reorganization, reclassification, consolidation, merger or sale or other disposition of the Companys assets, and this Warrant shall terminate unless exercised prior to the date such public offering is closed or the occurrence of such reorganization, reclassification, consolidation, merger or sale or other disposition of the Companys assets.
6.3 Titles and Subtitles. The titles and subtitles used in this Warrant are for convenience only and are not to be considered in construing or interpreting this Warrant.
6.4 Notices. All notices and other communications under this Warrant shall be in writing and shall be deemed given upon receipt if delivered personally, or when sent if mailed by registered or certified mail (return receipt requested) or by reputable overnight express courier (charges prepaid) or transmitted by facsimile (with confirmation of transmittal) to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by advance written notice to the other parties.
6.5 Attorneys Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys fees, costs and disbursements in addition to any other relief to which such party may be entitled.
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6.6 Amendments and Waivers. This Warrant may be amended and the observance of any other term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of a 66 2/3% interest of the Warrants. Any amendment or waiver effected in accordance with this Section 6.6 shall be binding upon Holder of this Warrant (and of any shares of Series A Preferred Stock into which this Warrant is exercisable), and each future holder of all such securities and the Company.
6.7 Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
6.8 Governing Law. This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to its conflicts of laws principles.
[SIGNATURE PAGE FOLLOWS]
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This Warrant may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Date: , 2010 | CONATUS PHARMACEUTICALS INC., a Delaware corporation | |||||
By: |
| |||||
Name: | Steven J. Mento, Ph.D. | |||||
Title: | President and Chief Executive Officer | |||||
Address: | 4365 Executive Drive, Suite 200 | |||||
San Diego, California 92121 |
ACKNOWLEDGED AND AGREED: | ||
INVESTOR | ||
By: |
| |
Name: |
| |
Title: | ||
Address: |
| |
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[SIGNATURE PAGE TO WARRANT TO PURCHASE
SHARES OF SERIES A PREFERRED STOCK]
EXHIBIT A
FORM OF NOTICE OF EXERCISE
The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, shares of Series A Preferred Stock (as defined in the attached Warrant)* of CONATUS PHARMACEUTICALS INC., a Delaware corporation and herewith makes payment of $ therefor and requests that the certificates for such shares be issued in the name of, and delivered to, , federal taxpayer identification number , whose address is .
In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Series A Preferred Stock (as defined in the attached Warrant) are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and the undersigned will not offer, sell or otherwise dispose of any such shares of Series A Preferred Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws.
Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of, and delivered to, , federal taxpayer identification number , whose address is .
Dated:
|
(Signature must conform to name of holder |
as specified on the face of the Warrant) |
* | Insert here the number of shares as to which the Warrant is being exercised. |
EXHIBIT B
FORM OF NET ISSUE ELECTION NOTICE
(To be signed only on net issue exercise of the Warrant)
The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant with respect to shares of Series A Preferred Stock (as defined in the attached Warrant) of CONATUS PHARMACEUTICALS INC., a Delaware corporation, pursuant to the net issue election provisions set forth in Section 2.6 of the Warrant and requests that the certificates for the number of shares of Series A Preferred Stock issuable pursuant to said Section 2.6 after application of the net issue election formula to such shares of Series A Preferred Stock be issued in the name of, and delivered to, , federal taxpayer identification number , whose address is .
In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Series A Preferred Stock are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and the undersigned will not offer, sell or otherwise dispose of any such shares of Series A Preferred Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws.
Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of, and delivered to, , federal taxpayer identification number , whose address is .
Dated:
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(Signature must conform to name of holder |
as specified on the face of the Warrant) |
Exhibit 10.3
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (the Lease) is made and entered into as of the 7th day of April, 2006, by and between EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant). Pursuant to the terms of this Lease, Landlord agrees to lease the Premises (hereinafter defined) to Tenant and Tenant agrees to lease the Premises from Landlord. The Lease includes the following exhibits and attachments: Exhibit A (Outline and Location of Premises), Exhibit B (Expenses and Taxes), Exhibit C (Building Rules and Regulations), Exhibit D (Additional Provisions) and Exhibit E (Parking Agreement).
1. Basic Lease Information
1.01 Building shall mean the building located at 4365 Executive Drive, San Diego, California, commonly known as Pacifica Tower. Rentable Square Footage of the Building is deemed to be 313,428 square feet. Property shall mean the Building and the parcel(s) of land on which it is located. Common Areas shall mean the portion of the Building and Property that are designated by Landlord for the common use of tenants and others.
1.02 Premises shall mean the area shown on Exhibit A to this Lease. The Premises are located on the 2nd floor and known as suite 200. The Rentable Square Footage of the Premises is deemed to be 5,141 square feet.
1.03 Base Rent:
Period |
Annual Rate Per Square Foot |
Monthly Base Rent |
||||||
5/1/06-4/30/07 |
$ | 30.00 | $ | 12,852.50 | ||||
5/1/07-4/30/08 |
$ | 31.20 | $ | 13,366.60 | ||||
5/1/08-4/30/09 |
$ | 32.40 | $ | 13,880.70 | ||||
5/1/09-4/30/10 |
$ | 33.60 | $ | 14,394.80 |
1.04 Tenants Pro Rata Share: 1.6402%. Tenant shall pay Tenants Pro Rata Share of Taxes and Expenses in accordance Exhibit B of this Lease
1.05 Base Year for Taxes: 2006; Base Year for Expenses: 2006.
1.06 Term: A period of 48 months. Subject to Section 2, the Term shall commence on May 1, 2006 (the Commencement Date) and, unless terminated early in accordance with this Lease, end on April 30, 2010 (the Termination Date).
1.07 Security Deposit: $28,790.00, as more fully described in Section 5.
1.08 Broker(s): Burnham Real Estate.
1.09 Permitted Use: General office use;provided that in no event shall the Premises, or any portion of the Premises, be used (i) for the operation of a permanent and temporary employment placement agency on the 4th floor of the Building, (ii) for a stock brokerage operation on the 6th floor of the Building, and (iii) for the sale of securities or the operation of a retail stock firm on the 8th floor of the Building.
1.10 Notice Addresses:
Landlord: | Tenant: | |
EOP-Plaza at La Jolla, L.L.C. c/o EOPMC of California, Inc. |
Prior to the Commencement Date:
| |
9255 Towne Center Drive |
Conatus Pharmaceuticals Inc. | |
Suite 800 |
12636 High Bluff Drive, Suite 400 | |
San Diego, California 92121 |
San Diego, CA 92130-2071 | |
Attn: Property Manager |
Telephone: 858-523-5431 | |
Facsimile: 858-523-5450 | ||
Attn: Charles J. Cashion | ||
Senior Vice President and | ||
Chief Financial Officer
| ||
From and after the Commencement Date:
| ||
At the Premises | ||
Attn: Charles J. Cashion | ||
Senior Vice President and | ||
Chief Financial Officer |
A copy of any notices to Landlord shall be sent to Equity Office, One Market, 600 Spear Tower, San Francisco, CA 94105, Attn: Managing Counsel Los Angeles Region.
1.11 Business Day(s) are Monday through Friday of each week, exclusive of New Years Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (Holidays). Landlord
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may designate no more than 2 additional Holidays that are commonly recognized by other office buildings in the area where the Building is located. Building Service Hours are 6:00 a.m. to 6:00 p.m. on Business Days and 9:00 a.m. to 12:00 p.m. on Saturdays.
2. Adjustment of Commencement Date; Possession.
2.01 Intentionally omitted.
2.02 The Premises are accepted by Tenant in as is condition and configuration without any representations or warranties by Landlord. Notwithstanding the foregoing, Tenant (and Tenants contractors) have Landlords approval to enter the Premises upon the full and final execution of this Lease with no obligation to pay Rent or parking charges (as defined in Exhibit E). Landlord may withdraw such permission to enter the Premises prior to the Commencement Date at any time that Landlord reasonably determines that such entry by Tenant is causing a dangerous situation for Landlord, Tenant or their respective contractors or employees.
3. Rent. Tenant shall pay Landlord, without any setoff or deduction, all Base Rent and Additional Rent due for the Term (collectively referred to as Rent). Additional Rent means all sums (exclusive of Base Rent) that Tenant is required to pay Landlord under this Lease. Tenant shall pay and be liable for all rental, sales and use taxes (but excluding income taxes), if any, imposed upon or measured by Rent. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month without notice or demand. All other items of Rent shall be due and payable by Tenant on or before 30 days after billing by Landlord provided that the installment of Base Rent and Additional Rent for the first full calendar month of the Term shall be payable upon the execution of this Lease by Tenant. Rent shall be made payable to the entity and sent to the address Landlord designates. Tenant shall pay Landlord an administration fee equal to 5% of all past due Rent, provided that Tenant shall be entitled to a grace period of 5 days for the first 2 late payments of Rent in a calendar year. In addition, past due Rent shall accrue interest at 12% per annum. Rent for any partial month during the Term shall be prorated. No endorsement or statement on a check or letter accompanying payment shall be considered an accord and satisfaction. Tenants covenant to pay Rent is independent of every other covenant in this Lease.
4. Compliance with Laws; Use. The Premises shall be used for the Permitted Use and for no other use whatsoever. Tenant shall comply with all statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity (Laws) regarding the operation of Tenants business and the use, condition, configuration and occupancy of the Premises. Tenant shall comply with the rules and regulations of the Building attached as Exhibit E and such other reasonable rules and regulations as adopted by Landlord from time to time.
5. Security Deposit. The Security Deposit shall be delivered to Landlord upon the execution of this Lease by Tenant and held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenants obligations. The Security Deposit is not an advance payment of Rent or a measure of damages. Landlord may use all or a portion of the Security Deposit to satisfy past due Rent, cure any Default (defined in Section 17), or to satisfy any other loss or damage resulting from Tenants Default as provided in Section 18. If Landlord uses any portion of the Security Deposit, Tenant shall on demand restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 45 days after the later to occur of: (a) determination of the final Rent due from Tenant; or (b) the later to occur of the Termination Date or the date Tenant surrenders the Premises to Landlord in compliance with Section 24. Landlord shall not be required to keep the Security Deposit separate from its other accounts. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any successor Laws now or hereafter in effect.
Subject to the remaining terms of this Section 5, and provided that, (i) during the 12 month period immediately preceding the effective date of any reduction of the Security Deposit, Tenant has timely paid all Rent and no Default has occurred under this Lease and (ii) Tenant receives additional financing in the amount of $17 million dollars and provides Landlord with reasonable evidence of the same (collectively, the Security Reduction Conditions), Tenant shall have the one time right to reduce the amount of the Security Deposit so that the new Security Deposit amount will be $14,395.00. Notwithstanding anything to the contrary contained herein, if Tenant has been in default under this Lease at any time prior to the effective date of any reduction of the Security Deposit and Tenant has failed to cure such default within any applicable cure period, then Tenant shall have no further right to reduce the amount of the Security Deposit as described herein.
If Tenant is entitled to a reduction in the Security Deposit, Tenant shall provide Landlord with written notice requesting that the Security Deposit be reduced as provided above (the Security Reduction Notice). If Tenant provides Landlord with a Security Reduction Notice, and Tenant is entitled to reduce the Security Deposit as provided herein, Landlord shall refund the applicable portion of the Security Deposit to Tenant within 45 days after the later to occur of (a) Landlords receipt of the Security Reduction Notice, or (b) the date upon which Tenant is entitled to a reduction in the Security Deposit as provided above.
6. Building Services. Landlord shall furnish Tenant with the following services: (a) water service for use in the base building lavatories; (b) customary heat and air conditioning in season during standard Building service hours, although Tenant shall have the right to receive HVAC service during hours other than standard service hours by paying Landlords then standard charge for additional HVAC service and providing such reasonable prior notice as is specified by Landlord. As of the date hereof, Landlords charge for after hours heating and air conditioning service is $70.00 per hour, subject to change from time to time; (c) standard janitor service; (d) elevator service; and (e) electricity. Electricity used by Tenant in the Premises shall, at Landlords option, be paid for by Tenant either: (i) through inclusion in Expenses (except as provided for excess usage); (ii) by a separate charge payable by Tenant to Landlord; or (iii) by separate charge billed by the applicable utility company. Tenants use of electrical service shall not exceed the standard usage for the Building. Landlords failure to furnish, or any interruption, diminishment or termination of, services due to the application of Laws, the failure of any equipment, the performance of repairs, improvements or alterations, utility interruptions or the occurrence of an event of Force
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Majeure (defined in Section 25.02) shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement.
7. Leasehold Improvements. All improvements in and to the Premises, including any Alterations (defined in Section 8.02) (collectively, Leasehold Improvements) shall remain upon the Premises at the end of the Term without compensation to Tenant, provided that Tenant, at its expense, in compliance with the National Electric Code or other applicable Laws, shall remove, on or before the Termination date, any electronic, fiber, phone and data cabling and related equipment (collectively, Cable). In addition, Landlord, by written notice to Tenant at least 30 days prior to the Termination Date, may require Tenant, at its expense, to remove any Alterations that, in Landlords reasonable judgment, are not standard office improvements and are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (the Cable and such other items collectively are referred to as Required Removables). The Required Removables shall be removed by Tenant before the Termination Date. Tenant shall repair damage caused by the installation or removal of Required Removables. If Tenant fails to perform its obligations in a timely manner, Landlord may perform such work at Tenants expense. Tenant, at the time it requests approval for a proposed Alteration, may request in writing that Landlord advise Tenant whether the Alteration, including any Initial Alterations or Landlord Work, or any portion thereof, is a Required Removable. Within 10 days after receipt of Tenants request, Landlord shall advise Tenant in writing as to which portions of the alteration or other improvements are Required Removables. Notwithstanding the foregoing, Tenant shall not be required to remove pre-existing improvements in the Premises as of the date of this Lease.
8. Repairs and Alterations.
8.01 Tenant shall periodically inspect the Premises to identify any conditions that are dangerous or in need of maintenance or repair and shall promptly provide Landlord with notice of any such conditions. Tenant shall, at its sole cost and expense, promptly perform all maintenance and repairs to the Premises that are not Landlords express responsibility under this Lease, and shall keep the Premises in good condition and repair, reasonable wear and tear excepted. If Tenant fails to make any repairs to the Premises for more than 15 days after notice from Landlord (although notice shall not be required in an emergency), Landlord may make the repairs, and Tenant shall pay the reasonable cost of the repairs, together with an administrative charge in an amount equal to 10% of the cost of the repairs. Landlord shall perform all maintenance and repairs upon the: (a) structural elements of the Building; (b) mechanical, electrical, plumbing and fire/life safety systems serving the Building in general; (c) Common Areas; (d) roof of the Building; (e) exterior windows of the Building; and (f) elevators serving the Building. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932, and Sections 1941 and 1942 of the California Civil Code, or any similar or successor Laws now or hereinafter in effect.
8.02 Tenant shall not make alterations, repairs, additions or improvements or install any Cable (collectively referred to as Alterations) without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld. In order to obtain such approvals, Tenant shall furnish Landlord with plans and specifications; names of contractors acceptable to Landlord; required permits and approvals; evidence of contractors and subcontractors insurance in amounts reasonably required by Landlord and naming Landlord and the Landlord Related Parties as an additional insured; and any security for performance in amounts reasonably required by Landlord. Tenant shall reimburse Landlord for any sums paid by Landlord for third party examination of Tenants plans for Alterations. In addition, Tenant shall pay Landlord a fee for Landlords oversight and coordination of any Alterations (other than the initial electronic, fiber, phone and data cabling and related equipment set up) equal to 5% of the cost of the Alterations. Upon completion, Tenant shall furnish as-built plans for Alterations, completion affidavits and full and final waivers of lien.
9. Entry by Landlord. Landlord may enter the Premises to inspect or show the Premises, to clean and make repairs, alterations or additions and to perform or facilitate maintenance, repairs, alterations or additions to any portion of the Building. Except in emergencies or to provide Building services, Landlord shall provide Tenant with reasonable prior verbal notice of entry. Entry by Landlord shall not constitute a constructive eviction or entitle Tenant to an abatement or reduction of Rent.
10. Assignment and Subletting. Except in connection with a Business Transfer (defined below), Tenant shall not, directly or indirectly, assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a Transfer) without the prior written consent of Landlord, which consent shall not be unreasonably withheld if Landlord does not exercise its recapture rights. Without limitation, it is agreed that Landlords consent shall not be considered unreasonably withheld if the proposed transferee is an occupant of the Building or if the proposed transferee, whether or not an occupant of the Building, is in discussions with Landlord regarding the leasing of space within the Building. Any attempted Transfer in violation of this Article shall be a Default by Tenant and shall, at Landlords option, be void. Within 15 business days after receipt of executed copies of the transfer documentation and such other information as Landlord may request, Landlord shall either: (a) consent to the Transfer by execution of a consent agreement in a form reasonably designated by Landlord; (b) refuse to consent to the Transfer; or (c) recapture the portion of the Premises that Tenant is proposing to Transfer. If Landlord exercises its right to recapture, the Lease shall automatically be amended to delete the applicable portion of the Premises effective on the proposed effective date of the Transfer. Tenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any similar or successor Laws, now or hereinafter in effect, and all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable Laws, on behalf of the proposed transferee. In no event shall any Transfer release or relieve Tenant from any obligation under this Lease, as same may be amended. Tenant shall pay Landlord a review fee of $1,200.00 for Landlords review of any requested Transfer. Tenant shall pay Landlord, as Additional Rent, 50% of all rent and other consideration which Tenant receives as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Premises and Term covered by the Transfer. Tenant may deduct from the excess, on a straight-line basis, all reasonable and customary expenses directly incurred by Tenant attributable to the Transfer. If Tenant is in Default, Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of Tenants share of payments received by Landlord.
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Tenant may assign this Lease to a successor to Tenant by merger, consolidation or the purchase of substantially all of Tenants assets, or assign this Lease or sublet all or a portion of the Premises to an Affiliate (defined below), without the consent of Landlord, provided that all of the following conditions are satisfied (a Business Transfer): (a) Tenant must not be in Default; (b) Tenant must give Landlord written notice at least 15 Business Days before such Transfer; and (c) if such Transfer will result from a merger or consolidation of Tenant with another entity, then the Credit Requirement (defined below) must be satisfied. Tenants notice to Landlord shall include information and documentation evidencing the Business Transfer and showing that each of the above conditions has been satisfied. If requested by Landlord, Tenants successor shall sign a commercially reasonable form of assumption agreement. Affiliate shall mean an entity controlled by, controlling or under common control with Tenant. The Credit Requirement shall be deemed satisfied if, as of the date immediately preceding the date of the Transfer, the financial strength of the entity with which Tenant is to merge or consolidate is not less than that of Tenant, as determined (x) based on credit ratings of such entity and Tenant by both Moodys and Standard & Poors (or by either such agency alone, if applicable ratings by the other agency do not exist), or (y) if such credit ratings do not exist, then in accordance with Moodys KMV RiskCalc (i.e., the on-line software tool offered by Moodys for analyzing credit risk) based on CFO-certified financial statements for such entity and Tenant covering their last two fiscal years ending before the Transfer.
11. Liens. Tenant shall not permit mechanics or other liens to be placed upon the Property or Premises in connection with any work purportedly done by or for the benefit of Tenant or its transferees. Tenant shall, within 10 days of notice from Landlord, fully discharge any lien by settlement or by bonding or insuring over the lien in the manner prescribed by Law. Tenants failure to fully discharge the lien within such 10 day period shall be a Default. In addition to any other remedies available to Landlord as a result of such Default by Tenant, Landlord may bond, insure over or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord, including, without limitation, reasonable attorneys fees.
12. Indemnity and Waiver of Claims. Except to the extent caused by the negligence or willful misconduct of Landlord or the Landlord Related Parties (defined below), Tenant shall indemnify, defend and hold Landlord and the Landlord Related Parties harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Landlord or any of the Landlord Related Parties by any third party and arising out of or in connection with any damage or injury occurring in the Premises or any acts or omissions of Tenant or any of Tenants officers, employees or agents (collectively the Tenant Related Parties) or any of their transferees, contractors or licensees. Except to the extent caused by the negligence or willful misconduct of Tenant or the Tenant Related Parties, Landlord shall indemnify, defend and hold Tenant harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Tenant or any of the Tenant Related Parties by any third party and arising out of or in connection with any acts or omissions of Landlord or any of the Landlord Related Parties. Tenant hereby waives all claims against and releases Landlord and its trustees, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagees and agents (the Landlord Related Parties) from all claims for any injury to or death of persons, damage to property or business loss in any manner related to (a) acts of God, (b) acts of third parties, (c) the bursting or leaking of any tank, water closet, drain or other pipe, (d) the inadequacy or failure of any security services, personnel or equipment, or (e) any matter outside of the reasonable control of Landlord.
13. Insurance. Tenant shall maintain the following insurance (Tenants Insurance): (a) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $2,000,000.00; (b) Property/Business Interruption Insurance written on an All Risk or Special Cause of Loss form, with coverage for broad form water damage including earthquake sprinkler leakage, at replacement cost value and with a replacement cost endorsement covering all of Tenants business and trade fixtures, equipment, movable partitions, furniture, merchandise and other personal property within the Premises (Tenants Property) and any Leasehold Improvements performed by or for the benefit of Tenant; (c) Workers Compensation Insurance as required by Law and in amounts as may be required by applicable statute and Employers Liability Coverage of at least $1,000,000.00 per occurrence. Any company writing Tenants Insurance shall have an A.M. Best rating of not less than A-VIII. All Commercial General Liability Insurance policies shall name Landlord (or its successors and assigns), the managing agent for the Building (or any successor), Equity Office Properties Trust, EOP Operating Limited Partnership and their respective members, principals, beneficiaries, partners, officers, directors, employees, and agents, and other designees of Landlord and its successors as the interest of such designees shall appear, as additional insureds. In addition, Landlord shall be named as a loss payee with respect to Property/Business Interruption Insurance on the Leasehold Improvements. All policies of Tenants Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 30 days advance written notice of any cancellation, termination, material change or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenants insurance prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises, and thereafter as necessary to assure that Landlord always has current certificates evidencing Tenants Insurance.
14. Subrogation. Landlord and Tenant hereby waive and shall cause their respective insurance carriers to waive any and all rights of recovery, claims, actions or causes of action against the other for any loss or damage with respect to Tenants Property, Leasehold Improvements, the Building, the Premises, or any contents thereof, including rights, claims, actions and causes of action based on negligence, which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance. For the purposes of this waiver, any deductible with respect to a partys insurance shall be deemed covered by and recoverable by such party under valid and collectable policies of insurance.
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15. Casualty Damage. Landlord, by notice to Tenant within 60 days of the date of the fire or other casualty (a Casualty), shall have the right to terminate this Lease if all or any part of the Premises is damaged to the extent that it cannot reasonably be repaired within 120 days after the date of the Casualty. If this Lease is not terminated, Landlord shall promptly and diligently restore the Premises. Such restoration shall be to substantially the same condition that existed prior to the Casualty, except for modifications required by Law. However, in no event shall Landlord be required to spend more than the insurance proceeds received by Landlord. Upon notice from Landlord, Tenant shall assign or endorse over to Landlord (or to any party designated by Landlord) all property insurance proceeds payable to Tenant under Tenants Insurance with respect to any Leasehold Improvements performed by or for the benefit of Tenant; provided if the estimated cost to repair such Leasehold Improvements exceeds the amount of insurance proceeds received by Landlord from Tenants insurance carrier, the excess cost of such repairs shall be paid by Tenant to Landlord prior to Landlords commencement of repairs. Within 15 days of demand, Tenant shall also pay Landlord for any additional excess costs that are determined during the performance of the repairs. Landlord shall not be liable for any inconvenience to Tenant, or injury to Tenants business, resulting in any way from the Casualty or the repair thereof. Provided that Tenant is not in Default, during any period of time that all or a material portion of the Premises is rendered untenantable as a result of a Casualty, the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant. The provisions of this Lease, including this Section 15, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building, the Property or the Project, and any Laws, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any similar or successor Laws now or hereinafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Property.
16. Condemnation. Either party may terminate this Lease if any material part of the Premises is taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a Taking). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Property which would have a material adverse effect on Landlords ability to profitably operate the remainder of the Building. The terminating party shall provide written notice of termination to the other party within 45 days after it first receives notice of the Taking. The termination shall be effective as of the effective date of any order granting possession to, or vesting legal title in, the condemning authority. All compensation awarded for a Taking, or sale proceeds, shall be the property of Landlord. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure, or any similar or successor Laws.
17. Events of Default. In addition to any other default specifically described in this Lease, each of the following occurrences shall be considered to be a Default: (a) Tenants failure to pay any portion of Rent when due, if the failure continues for 5 business days after written notice to Tenant, which notice shall be in satisfaction of, and not in addition to, notice required by Law (Monetary Default); or (b) Tenants failure (other than a Monetary Default) to comply with any term, provision, condition or covenant of this Lease, if the failure is not cured within 10 days after written notice to Tenant, which notice shall be in satisfaction of, and not in addition to, notice required by Law, provided, however, if Tenants failure to comply cannot reasonably be cured within 10 days, Tenant shall be allowed additional time (not to exceed 60 days) as is reasonably necessary to cure the failure so long as Tenant commences to cure within 10 days and Tenant diligently pursues the cure to completion.
18. Remedies.
18.01 Upon the occurrence of any Default under this Lease, whether enumerated in Section 17 or not, Landlord shall have the option to pursue any one or more of the following remedies without any notice (except as expressly prescribed herein) or demand whatsoever (and without limiting the generality of the foregoing, Tenant hereby specifically waives notice and demand for payment of Rent or other obligations, except for those notices specifically required pursuant to the terms of Section 17 or this Section 18, and waives any and all other notices or demand requirements imposed by applicable law):
(a) Terminate this Lease and Tenants right to possession of the Premises and recover from Tenant an award of damages equal to the sum of the following:
(i) The Worth at the Time of Award of the unpaid Rent which had been earned at the time of termination;
(ii) The Worth at the Time of Award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that Tenant affirmatively proves could have been reasonably avoided;
(iii) The Worth at the Time of Award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant affirmatively proves could be reasonably avoided;
(iv) Any other amount necessary to compensate Landlord for all the detriment either proximately caused by Tenants failure to perform Tenants obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and
(v) All such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable law.
The Worth at the Time of Award of the amounts referred to in parts (i) and (ii) above, shall be computed by allowing interest at the lesser of a per annum rate equal to: (A) the greatest per annum rate of interest
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permitted from time to time under applicable law, or (B) the Prime Rate plus 5%. For purposes hereof, the Prime Rate shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the State of California. The Worth at the Time of Award of the amount referred to in part (iii), above, shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%;
(b) Employ the remedy described in California Civil Code § 1951.4 (Landlord may continue this Lease in effect after Tenants breach and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations); or
(c) Notwithstanding Landlords exercise of the remedy described in California Civil Code § 1951.4 in respect of an event or events of default, at such time thereafter as Landlord may elect in writing, to terminate this Lease and Tenants right to possession of the Premises and recover an award of damages as provided above in Paragraph 18.01(a).
18.02 The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlords knowledge of such preceding breach at the time of acceptance of such Rent. No waiver by Landlord of any breach hereof shall be effective unless such waiver is in writing and signed by Landlord.
18.03 TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRED BY SECTION 3275 OF THE CIVIL CODE OF CALIFORNIA AND BY SECTIONS 1174 (c) AND 1179 OF THE CODE OF CIVIL PROCEDURE OF CALIFORNIA AND ANY AND ALL OTHER LAWS AND RULES OF LAW FROM TIME TO TIME IN EFFECT DURING THE LEASE TERM PROVIDING THAT TENANT SHALL HAVE ANY RIGHT TO REDEEM, REINSTATE OR RESTORE THIS LEASE FOLLOWING ITS TERMINATION BY REASON OF TENANTS BREACH. TENANT ALSO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS LEASE.
18.04 No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing by agreement, applicable law or in equity. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default.
18.05 If Tenant is in Default of any of its non-monetary obligations under the Lease, Landlord shall have the right to perform such obligations. Tenant shall reimburse Landlord for the cost of such performance upon demand together with an administrative charge equal to 10% of the cost of the work performed by Landlord.
18.06 This Section 18 shall be enforceable to the maximum extent such enforcement is not prohibited by applicable law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion.
19. Limitation of Liability.
THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) SHALL BE LIMITED TO THE LESSER OF (A) THE INTEREST OF LANDLORD IN THE PROPERTY, OR (B) THE EQUITY INTEREST LANDLORD WOULD HAVE IN THE PROPERTY IF THE PROPERTY WERE ENCUMBERED BY THIRD PARTY DEBT IN AN AMOUNT EQUAL TO 70% OF THE VALUE OF THE PROPERTY. TENANT SHALL LOOK SOLELY TO LANDLORDS INTEREST IN THE PROPERTY FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD OR ANY LANDLORD RELATED PARTY. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY AND IN NO EVENT SHALL LANDLORD OR ANY LANDLORD RELATED PARTY BE LIABLE TO TENANT FOR ANY LOST PROFIT, DAMAGE TO OR LOSS OF BUSINESS OR ANY FORM OF SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGE. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) (DEFINED IN SECTION 22 BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN SECTION 22 BELOW), NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT.
20. Relocation. Landlord, at its expense, at any time before or during the Term, may relocate Tenant from the Premises to space of reasonably comparable size and utility (Relocation Space) within the Building or other buildings within the same project upon 60 days prior written notice to Tenant. The Relocation Space must contain similar finishes as the Premises, including electronic, fiber, phone and data systems existing as of the Commencement Date, and approximately the same Rentable Square Footage as the Premises and the same number of work stations, offices, breakrooms and reception areas as are contained in the Premises as of the date Tenant receives Landlords notice of relocation. From and after the date of the relocation, Premises shall refer to the Relocation Space into which Tenant has been moved and the Base Rent and Tenants Pro Rata Share shall be adjusted based on the rentable square footage of the Relocation Space.
21. Holding Over. If Tenant fails to surrender all or any part of the Premises at the termination of this Lease, occupancy of the Premises after termination shall be that of a tenancy at sufferance. Tenants occupancy shall be subject to all the terms and provisions of this Lease and Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover. No holdover by Tenant or payment by Tenant after the termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise.
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22. Subordination to Mortgages; Estoppel Certificate. Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building or the Property, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a Mortgage). This clause shall be self-operative, but upon request from the holder of a Mortgage (a Mortgagee), Tenant shall execute a commercially reasonable subordination agreement. As an alternative, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. Upon request, Tenant shall, without charge, attorn to any successor to Landlords interest in the Lease. Tenant shall, within 10 days after receipt of a written request from Landlord, execute and deliver a commercially reasonable estoppel certificate to those parties as are reasonably requested by Landlord.
23. Notice. All demands, approvals, consents or notices shall be in writing and delivered by hand or sent by registered or certified mail with return receipt requested, or sent by overnight or same day courier service at the partys respective Notice Address(es) set forth in Section 1. Each notice shall be deemed to have been received on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or any other Notice Address without providing a new Notice Address, 4 days after notice is deposited in the U.S. mail or with a courier service in the manner described above. Either party may, at any time, change its Notice Address (other than to a post office box address) by giving the other party written notice of the new address.
24. Surrender of Premises. At the termination of this Lease or Tenants right of possession, Tenant shall remove Tenants Property, all Cable installed by or for the benefit of Tenant and any designated Required Removables from the Premises, and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear and damage which Landlord is obligated to repair hereunder excepted. If Tenant fails to remove any of Tenants Property within 3 days after termination, Landlord, at Tenants sole cost and expense, shall be entitled to remove and store Tenants Property. Landlord shall not be responsible for the value, preservation or safekeeping of Tenants Property. Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred. If Tenant fails to remove Tenants Property from the Premises or storage within 30 days after notice, Landlord may deem all or any part of Tenants Property to be abandoned and title to Tenants Property shall vest in Landlord. If Tenant fails to remove Cable or any of the designated Required Removables as required above or complete any related repairs within 3 days after termination, Landlord may perform such work at Tenants expense.
25. Miscellaneous.
25.01 If either party institutes a suit against the other for violation of or to enforce any covenant, term or condition of this Lease, the prevailing party shall be entitled to reimbursement of all of its costs and expenses, including, without limitation, reasonable attorneys fees. Landlord and Tenant hereby waive any right to trial by jury in any proceeding based upon a breach of this Lease. Either partys failure to declare a default immediately upon its occurrence, or delay in taking action for a default shall not constitute a waiver of the default, nor shall it constitute an estoppel.
25.02 Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant (other than the payment of the Security Deposit or Rent), the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, terrorist acts, civil disturbances and other causes beyond the reasonable control of the performing party (Force Majeure). Force Majeure shall not include financial difficulties of the party required to perform.
25.03 Landlord shall have the right to transfer and assign, in whole or in part, all of its ownership interest, rights and obligations in the Building, Property or Lease, including the Security Deposit, and upon transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations and the return of any Security Deposit.
25.04 Landlord has delivered a copy of this Lease to Tenant for Tenants review only, and the delivery of it does not constitute an offer to Tenant or an option. Tenant represents that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Tenant shall indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Lease. Equity Office Properties Management Corp. (EOPMC) is an affiliate of Landlord and represents only the Landlord in this transaction. Any assistance rendered by any agent or employee of EOPMC in connection with this Lease or any subsequent amendment or modification hereto has been or will be made as an accommodation to Tenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant.
25.05 The expiration of the Term, whether by lapse of time, termination or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or termination of this Lease.
25.06 Tenant shall, and may peacefully have, hold and enjoy the Premises, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building.
25.07 This Lease constitutes the entire agreement between the parties and supersedes all prior agreements and understandings related to the Premises. This Lease may be modified only by a written agreement signed by Landlord and Tenant. This Lease shall be interpreted and enforced in accordance with the Laws of the state or commonwealth in which the Building is located.
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25.08 Tenant represents and warrants to Landlord that each individual executing this Lease on behalf of Tenant is authorized to do so on behalf of Tenant and that Tenant is not, and the entities or individuals constituting Tenant or which may own or control Tenant or which may be owned or controlled by Tenant are not, (i) in violation of any Laws relating to terrorism or money laundering, or (ii) among the individuals or entities identified on any list compiled pursuant to Executive Order 13224 for the purpose of identifying suspected terrorists or on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/tllsdn.pdf or any replacement website or other replacement official publication of such list.
Landlord and Tenant have executed this Lease as of the day and year first above written.
LANDLORD: | ||||||||
EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company | ||||||||
By: | EOP-La Jolla Limited Partnership, a Delaware limited partnership, its sole member | |||||||
By: | EOP-La Jolla GP, L.L.C., a Delaware limited liability company, its general partner | |||||||
By: | EOP Operating Limited Partnership, a Delaware limited partnership, its sole member | |||||||
By: | Equity Office Properties Trust, a Maryland real estate investment trust, its general partner | |||||||
By: |
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| ||||||||
Name: | Frank R. Campbell | |||||||
Title: | Vice President |
TENANT: | ||
CONATUS PHARMACEUTICALS INC., a Delaware corporation | ||
By: |
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Name: | Steven J. Mento | |
Title: | Pres. & CEO. | |
20-3183915 | ||
Tenants Tax ID Number (SSN or FEIN) |
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EXHIBIT A
OUTLINE AND LOCATION OF PREMISES
This Exhibit is attached to and made a part of the Lease by and between EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant) for space in the Building located at 4365 Executive Drive, San Diego, California, commonly known as Pacifica Tower.
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EXHIBIT B
EXPENSES AND TAXES
This Exhibit is attached to and made a part of the Lease by and between EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant) for space in the Building located at 4365 Executive Drive, San Diego, California, commonly known as Pacifica Tower.
1. Payments.
1.01 Tenant shall pay Tenants Pro Rata Share of the amount, if any, by which Expenses (defined below) for each calendar year during the Term exceed Expenses for the Base Year (the Expense Excess) and also the amount, if any, by which Taxes (defined below) for each calendar year during the Term exceed Taxes for the Base Year (the Tax Excess). If Expenses or Taxes in any calendar year decrease below the amount of Expenses or Taxes for the Base Year, Tenants Pro Rata Share of Expenses or Taxes, as the case may be, for that calendar year shall be $0. Landlord shall provide Tenant with a good faith estimate of the Expense Excess and of the Tax Excess for each calendar year during the Term. On or before the first day of each month, Tenant shall pay to Landlord a monthly installment equal to one-twelfth of Tenants Pro Rata Share of Landlords estimate of both the Expense Excess and Tax Excess. After its receipt of the revised estimate, Tenants monthly payments shall be based upon the revised estimate. If Landlord does not provide Tenant with an estimate of the Expense Excess or the Tax Excess by January 1 of a calendar year, Tenant shall continue to pay monthly installments based on the previous years estimate(s) until Landlord provides Tenant with the new estimate.
1.02 As soon as is practical following the end of each calendar year, Landlord shall furnish Tenant with a statement of the actual Expenses and Expense Excess and the actual Taxes and Tax Excess for the prior calendar year. If the estimated Expense Excess or estimated Tax Excess for the prior calendar year is more than the actual Expense Excess or actual Tax Excess, as the case may be, for the prior calendar year, Landlord shall either provide Tenant with a refund or apply any overpayment by Tenant against Additional Rent due or next becoming due, provided if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due. If the estimated Expense Excess or estimated Tax Excess for the prior calendar year is less than the actual Expense Excess or actual Tax Excess, as the case may be, for such prior year, Tenant shall pay Landlord, within 30 days after its receipt of the statement of Expenses or Taxes, any underpayment for the prior calendar year.
2. Expenses.
2.01 Expenses means all costs and expenses incurred in each calendar year in connection with operating, maintaining, repairing, and managing the Building and the Property. Expenses include, without limitation: (a) all labor and labor related costs, including wages, salaries, bonuses, taxes, insurance, uniforms, training, retirement plans, pension plans and other employee benefits; (b) management fees; (c) the cost of equipping, staffing and operating an on-site and/or off-site management office for the Building, provided if the management office services one or more other buildings or properties, the shared costs and expenses of equipping, staffing and operating such management office(s) shall be equitably prorated and apportioned between the Building and the other buildings or properties; (d) accounting costs; (e) the cost of services; (f) rental and purchase cost of parts, supplies, tools and equipment; (g) insurance premiums and deductibles; (h) electricity, gas and other utility costs; and (i) the amortized cost of capital improvements (as distinguished from replacement parts or components installed in the ordinary course of business) made subsequent to the Base Year which are: (1) performed primarily to reduce current or future operating expense costs, upgrade Building security or otherwise improve the operating efficiency of the Property; or (2) required to comply with any Laws that are enacted, or first interpreted to apply to the Property, after the date of this Lease. The cost of capital improvements shall be amortized by Landlord over the lesser of the Payback Period (defined below) or the useful life of the capital improvement as reasonably determined by Landlord. The amortized cost of capital improvements may, at Landlords option, include actual or imputed interest at the rate that Landlord would reasonably be required to pay to finance the cost of the capital improvement. Payback Period means the reasonably estimated period of time that it takes for the cost savings resulting from a capital improvement to equal the total cost of the capital improvement. Landlord, by itself or through an affiliate, shall have the right to directly perform, provide and be compensated for any services under this Lease. If Landlord incurs Expenses for the Building or Property together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned between the Building and Property and the other buildings or properties.
2.02 Expenses shall not include: the cost of capital improvements (except as set forth above); depreciation; principal payments of mortgage and other non-operating debts of Landlord; the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds; costs in connection with leasing space in the Building, including brokerage commissions; lease concessions, rental abatements and construction allowances granted to specific tenants; costs incurred in connection with the sale, financing or refinancing of the Building; fines, interest and penalties incurred due to the late payment of Taxes or Expenses; organizational expenses associated with the creation and operation of the entity which constitutes Landlord; or any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases.
2.03 If at any time during a calendar year the Building is not at least 95% occupied or Landlord is not supplying services to at least 95% of the total Rentable Square Footage of the Building, Expenses shall be determined as if the Building had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Building. If Expenses for a calendar year are determined as provided in the prior sentence, Expenses for the Base Year shall also be determined in such manner. Notwithstanding the foregoing, Landlord may calculate the extrapolation of Expenses under this Section based on 100% occupancy and service so long as such percentage is used consistently for each year of the Term. The extrapolation of Expenses under this Section shall be performed in accordance with the methodology specified by the Building Owners and Managers Association.
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3. Taxes shall mean: (a) all real property taxes and other assessments on the Building and/or Property, including, but not limited to, gross receipts taxes, assessments for special improvement districts and building improvement districts, governmental charges, fees and assessments for police, fire, traffic mitigation or other governmental service of purported benefit to the Property, taxes and assessments levied in substitution or supplementation in whole or in part of any such taxes and assessments and the Propertys share of any real estate taxes and assessments under any reciprocal easement agreement, common area agreement or similar agreement as to the Property; (b) all personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Property; and (c) all costs and fees incurred in connection with seeking reductions in any tax liabilities described in (a) and (b), including, without limitation, any costs incurred by Landlord for compliance, review and appeal of tax liabilities. Without limitation, Taxes shall not include any income, capital levy, transfer, capital stock, gift, estate or inheritance tax. If a change in Taxes is obtained for any year of the Term during which Tenant paid Tenants Pro Rata Share of any Tax Excess, then Taxes for that year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on the adjustment. Likewise, if a change is obtained for Taxes for the Base Year, Taxes for the Base Year shall be restated and the Tax Excess for all subsequent years shall be recomputed. Tenant shall pay Landlord the amount of Tenants Pro Rata Share of any such increase in the Tax Excess within 30 days after Tenants receipt of a statement from Landlord.
4. Audit Rights. Tenant, within 365 days after receiving Landlords statement of Expenses, may give Landlord written notice (Review Notice) that Tenant intends to review Landlords records of the Expenses for the calendar year to which the statement applies. Within a reasonable time after receipt of the Review Notice, Landlord shall make all pertinent records available for inspection that are reasonably necessary for Tenant to conduct its review. If any records are maintained at a location other than the management office for the Building, Tenant may either inspect the records at such other location or pay for the reasonable cost of copying and shipping the records. If Tenant retains an agent to review Landlords records, the agent must be with a CPA firm licensed to do business in the state or commonwealth where the Property is located. Tenant shall be solely responsible for all costs, expenses and fees incurred for the audit. Within 90 days after the records are made available to Tenant, Tenant shall have the right to give Landlord written notice (an Objection Notice) stating in reasonable detail any objection to Landlords statement of Expenses for that year. If Tenant fails to give Landlord an Objection Notice within the 90 day period or fails to provide Landlord with a Review Notice within the 365 day period described above, Tenant shall be deemed to have approved Landlords statement of Expenses and shall be barred from raising any claims regarding the Expenses for that year. If Tenant provides Landlord with a timely Objection Notice, Landlord and Tenant shall work together in good faith to resolve any issues raised in Tenants Objection Notice. If Landlord and Tenant determine that Expenses for the calendar year are less than reported, Landlord shall provide Tenant with a credit against the next installment of Rent in the amount of the overpayment by Tenant. Likewise, if Landlord and Tenant determine that Expenses for the calendar year are greater than reported, Tenant shall pay Landlord the amount of any underpayment within 30 days. The records obtained by Tenant shall be treated as confidential. In no event shall Tenant be permitted to examine Landlords records or to dispute any statement of Expenses unless Tenant has paid and continues to pay all Rent when due.
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EXHIBIT C
BUILDING RULES AND REGULATIONS
This Exhibit is attached to and made a part of the Lease by and between EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant) for space in the Building located at 4365 Executive Drive, San Diego, California, commonly known as Pacifica Tower.
The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking facilities (if any), the Property and the appurtenances. In the event of a conflict between the following rules and regulations and the remainder of the terms of the Lease, the remainder of the terms of the Lease shall control. Capitalized terms have the same meaning as defined in the Lease.
1. | Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises. No rubbish, litter, trash, or material shall be placed, emptied, or thrown in those areas. At no time shall Tenant permit Tenants employees to loiter in Common Areas or elsewhere about the Building or Property. |
2. | Plumbing fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed in the fixtures or appliances. |
3. | No signs, advertisements or notices shall be painted or affixed to windows, doors or other parts of the Building, except those of such color, size, style and in such places as are first approved in writing by Landlord. All tenant identification and suite numbers at the entrance to the Premises shall be installed by Landlord, at Tenants cost and expense, using the standard graphics for the Building. Except in connection with the hanging of lightweight pictures and wall decorations, no nails, hooks or screws shall be inserted into any part of the Premises or Building except by the Building maintenance personnel without Landlords prior approval, which approval shall not be unreasonably withheld. |
4. | Landlord may provide and maintain in the first floor (main lobby) of the Building an alphabetical directory board or other directory device listing tenants, and no other directory shall be permitted unless previously consented to by Landlord in writing. |
5. | Tenant shall not place any lock(s) on any door in the Premises or Building without Landlords prior written consent, which consent shall not be unreasonably withheld, and Landlord shall have the right to retain at all times and to use keys or other access codes or devices to all locks within and into the Premises. A reasonable number of keys to the locks on the entry doors in the Premises shall be furnished by Landlord to Tenant at Tenants cost, and Tenant shall not make any duplicate keys. All keys shall be returned to Landlord at the expiration or early termination of this Lease. |
6. | All contractors, contractors representatives and installation technicians performing work in the Building shall be subject to Landlords prior approval, which approval shall not be unreasonably withheld, and shall be required to comply with Landlords standard rules, regulations, policies and procedures, which may be revised from time to time. |
7. | Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of merchandise or materials requiring the use of elevators, stairways, lobby areas or loading dock areas, shall be restricted to hours reasonably designated by Landlord. Tenant shall obtain Landlords prior approval by providing a detailed listing of the activity. If approved by Landlord, the activity shall be under the supervision of Landlord and performed in the manner required by Landlord. Tenant shall assume all risk for damage to articles moved and injury to any persons resulting from the activity. If equipment, property, or personnel of Landlord or of any other party is damaged or injured as a result of or in connection with the activity, Tenant shall be solely liable for any resulting damage or loss. |
8. | Landlord shall have the right to approve the weight, size, or location of heavy equipment or articles in and about the Premises, which approval shall not be unreasonably withheld. Damage to the Building by the installation, maintenance, operation, existence or removal of Tenants Property shall be repaired at Tenants sole expense. |
9. | Corridor doors, when not in use, shall be kept closed. |
10. | Tenant shall not: (1) make or permit any improper, objectionable or unpleasant noises or odors in the Building, or otherwise interfere in any way with other tenants or persons having business with them; (2) solicit business or distribute, or cause to be distributed, in any portion of the Building, handbills, promotional materials or other advertising; or (3) conduct or permit other activities in the Building that might, in Landlords sole opinion, constitute a nuisance. |
11. | No animals, except those assisting handicapped persons, shall be brought into the Building or kept in or about the Premises. |
12. | No inflammable, explosive or dangerous fluids or substances shall be used or kept by Tenant in the Premises, Building or about the Property, except for those substances as are typically found in similar premises used for general office purposes and are being used by Tenant in a safe manner and in accordance with all applicable Laws, rules and regulations.. Tenant shall not, without Landlords prior written consent, use, store, install, spill, remove, release or dispose of, within or about the Premises or any other portion of the Property, any asbestos-containing materials or any solid, liquid or gaseous material now or |
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subsequently considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable environmental Laws which may now or later be in effect. Tenant shall comply with all Laws pertaining to and governing the use of these materials by Tenant, and shall remain solely liable for the costs of abatement and removal. |
13. | Tenant shall not use or occupy the Premises in any manner or for any purpose which might injure the reputation or impair the present or future value of the Premises or the Building. Tenant shall not use, or permit any part of the Premises to be used, for lodging, sleeping or for any illegal purpose. |
14. | Tenant shall not take any action which would violate Landlords labor contracts or which would cause a work stoppage, picketing, labor disruption or dispute, or interfere with Landlords or any other tenants or occupants business or with the rights and privileges of any person lawfully in the Building (Labor Disruption). Tenant shall take the actions necessary to resolve the Labor Disruption, and shall have pickets removed and, at the request of Landlord, immediately terminate any work in the Premises that gave rise to the Labor Disruption, until Landlord gives its written consent for the work to resume. Tenant shall have no claim for damages against Landlord or any of the Landlord Related Parties, nor shall the Commencement Date of the Term be extended as a result of the above actions. |
15. | Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, electrical equipment that would overload the electrical system beyond its capacity for proper, efficient and safe operation as determined solely by Landlord. Tenant shall not furnish cooling or heating to the Premises, including, without limitation, the use of electronic or gas heating devices, without Landlords prior written consent. Tenant shall not use more than its proportionate share of telephone lines and other telecommunication facilities available to service the Building. |
16. | Tenant shall not operate or permit to be operated a coin or token operated vending machine or similar device (including, without limitation, telephones, lockers, toilets, scales, amusement devices and machines for sale of beverages, foods, candy, cigarettes and other goods), except for machines for the exclusive use of Tenants employees and invitees. |
17. | Bicycles and other vehicles are not permitted inside the Building or on the walkways outside the Building, except in areas designated by Landlord. |
18. | Landlord may from time to time adopt systems and procedures for the security and safety of the Building, its occupants, entry, use and contents. Tenant, its agents, employees, contractors, guests and invitees shall comply with Landlords systems and procedures. |
19. | Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant that in Landlords sole opinion may impair the reputation of the Building or its desirability. Upon written notice from Landlord, Tenant shall refrain from and discontinue such publicity immediately. |
20. | Neither Tenant nor its agents, employees, contractors, guests or invitees shall smoke or permit smoking in the Common Areas, unless the Common Areas have been declared a designated smoking area by Landlord, nor shall the above parties allow smoke from the Premises to emanate into the Common Areas or any other part of the Building. Landlord shall have the right to designate the Building (including the Premises) as a non-smoking building. |
21. | Landlord shall have the right to designate and approve standard window coverings for the Premises and to establish rules to assure that the Building presents a uniform exterior appearance. Tenant shall ensure, to the extent reasonably practicable, that window coverings are closed on windows in the Premises while they are exposed to the direct rays of the sun. |
22. | Deliveries to and from the Premises shall be made only at the times, in the areas and through the entrances and exits reasonably designated by Landlord. Tenant shall not make deliveries to or from the Premises in a manner that might interfere with the use by any other tenant of its premises or of the Common Areas, any pedestrian use, or any use which is inconsistent with good business practice. |
23. | The work of cleaning personnel shall not be hindered by Tenant after 5:30 p.m., and cleaning work may be done at any time when the offices are vacant. Windows, doors and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles to prevent unreasonable hardship to the cleaning service. |
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EXHIBIT D
ADDITIONAL PROVISIONS
This Exhibit is attached to and made a part of the Lease by and between EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant) for space in the Building located at 4365 Executive Drive, San Diego, California, commonly known as Pacifica Tower.
1. Renewal Option.
A. | Grant of Option: Conditions. Tenant shall have the right to extend the Term (the Renewal Option) for one additional period of 5 years commencing on the day following the Termination Date of the initial Term and ending on the 5th anniversary of the Termination Date (the Renewal Term), if: |
1. | Landlord receives notice of exercise (Initial Renewal Notice) not less than 9 full calendar months prior to the expiration of the initial Term and not more than 12 full calendar months prior to the expiration of the initial Term; and |
2. | Tenant is not in default under the Lease beyond any applicable cure periods at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice (as defined below); and |
3. | No part of the Premises is sublet (other than pursuant to a Business Transfer, as defined in Section 10) at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice; and |
4. | The Lease has not been assigned (other than pursuant to a Business Transfer, as defined in Section 10) prior to the date that Tenant delivers its Initial Renewal Notice or prior to the date Tenant delivers its Binding Notice. |
B. | Terms Applicable to Premises During Renewal Term. |
1. | The initial Base Rent rate per rentable square foot for the Premises during the Renewal Term shall equal the Prevailing Market (hereinafter defined) rate per rentable square foot for the Premises. Base Rent during the Renewal Term shall increase, if at all, in accordance with the increases assumed in the determination of Prevailing Market rate. Base Rent attributable to the Premises shall be payable in monthly installments in accordance with the terms and conditions of the Lease. |
2. | Tenant shall pay Additional Rent (i.e. Taxes and Expenses) for the Premises during the Renewal Term in accordance with the Lease, and the manner and method in which Tenant reimburses Landlord for Tenants share of Taxes and Expenses and the Base Year, if any, applicable to such matter, shall be some of the factors considered in determining the Prevailing Market rate for the Renewal Term. |
C. | Procedure for Determining Prevailing Market. Within 30 days after receipt of Tenants Initial Renewal Notice, Landlord shall advise Tenant of the applicable Base Rent rate for the Premises for the Renewal Term. Tenant, within 15 days after the date on which Landlord advises Tenant of the applicable Base Rent rate for the Renewal Term, shall either (i) give Landlord final binding written notice (Binding Notice) of Tenants exercise of its Renewal Option, or (ii) if Tenant disagrees with Landlords determination, provide Landlord with written notice of rejection (the Rejection Notice). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within such 15 day period, Tenants Renewal Option shall be null and void and of no further force and effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant shall enter into the Renewal Amendment (as defined below) upon the terms and conditions set forth herein. If Tenant provides Landlord with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree upon the Prevailing Market rate for the Premises during the Renewal Term. When Landlord and Tenant have agreed upon the Prevailing Market rate for the Premises, such agreement shall be reflected in a written agreement between Landlord and Tenant, whether in a letter or otherwise, and Landlord and Tenant shall enter into the Renewal Amendment in accordance with the terms and conditions hereof. Notwithstanding the foregoing, if Landlord and Tenant are unable to agree upon the Prevailing Market rate for the Premises within 30 days after the date Tenant provides Landlord with the Rejection Notice, Tenants Renewal Option shall be deemed to be null and void and of no force and effect. |
D. | Renewal Amendment. If Tenant is entitled to and properly exercises its Renewal Option, Landlord shall prepare an amendment (the Renewal Amendment) to reflect changes in the Base Rent, Term, Termination Date and other appropriate terms. The Renewal Amendment shall be sent to Tenant within a reasonable time after Landlords receipt of the Binding Notice or other written agreement by Landlord and Tenant regarding the Prevailing Market rate, and Tenant shall execute and return the Renewal Amendment to Landlord within 15 days after Tenants receipt of same, but, upon final determination of the Prevailing Market rate applicable during the Renewal Term as described herein, an otherwise valid exercise of the Renewal Option shall be fully effective whether or not the Renewal Amendment is executed. |
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E. | Definition of Prevailing Market. For purposes of this Renewal Option, Prevailing Market shall mean the arms length fair market annual rental rate per rentable square foot under renewal leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and office buildings comparable to the Building in the University Towne Centre submarket of San Diego. The determination of Prevailing Market shall take into account any material economic differences between the terms of this Lease and any comparison lease or amendment, such as rent abatements, construction costs and other concessions and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes. The determination of Prevailing Market shall also take into consideration any reasonably anticipated changes in the Prevailing Market rate from the time such Prevailing Market rate is being determined and the time such Prevailing Market rate will become effective under this Lease. |
F. | Subordination. Notwithstanding anything herein to the contrary, Tenants Renewal Option is personal to the original Tenant and subject and subordinate to the expansion rights (whether such rights are designated as a right of first offer, right of first refusal, expansion option or otherwise) of any tenant of the Building existing on the date hereof. |
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EXHIBIT E
PARKING AGREEMENT
This Exhibit is attached to and made a part of the Lease by and between EOP-PLAZA AT LA JOLLA, L.L.C., a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant) for space in the Building located at 4365 Executive Drive, San Diego, California, commonly known as Pacifica Tower.
1. | The capitalized terms used in this Parking Agreement shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Parking Agreement. In the event of any conflict between the Lease and this Parking Agreement, the latter shall control. |
2. | During the initial Term, Tenant agrees to lease from Landlord and Landlord agrees to lease to Tenant a minimum of 4 non-reserved parking spaces, but no more than 15 non-reserved parking spaces, and 2 reserved parking spaces in the parking facility servicing the Building (Parking Facility); provided, however, once Tenant leases such non-reserved parking spaces Tenant shall be obligated to lease such spaces for the balance of the initial Term. Notwithstanding the foregoing and subject to Landlord availability, Tenant may convert up to 2 of the non-reserved parking spaces to reserved parking spaces (Converted Spaces) upon prior written notice to Landlord. Landlord, at its sole discretion, may recapture the Converted Spaces upon 30 days prior written notice to Tenant. During the initial Term, Tenant shall pay in advance, concurrent with Tenants payment of monthly Base Rent, the charges for parking in the Parking Facility. Such charge shall be payable to Landlord or such other entity as designated by Landlord, and shall be sent to the address Landlord designates from time to time. The charge for such parking spaces shall be as follows: (i) $75.00 per non- reserved parking pass, per month during the initial Term, (ii) $150.00 per reserved parking pass, per month for the period commencing on the Commencement Date and ending April 30, 2008; and (iii) $175.00 per reserved parking pass, per month for the period commencing on May 1, 2008 and ending on the Termination Date. No deductions from the monthly charge shall be made for days on which the Parking Facility is not used by Tenant. Tenant may, from time to time request additional parking spaces, and if Landlord shall provide the same, such parking spaces shall be provided and used on a month-to-month basis, and otherwise on the foregoing terms and provisions, and at such prevailing monthly parking charges as shall be established from time to time. |
3. | Tenant shall at all times comply with all applicable ordinances, rules, regulations, codes, laws, statutes and requirements of all federal, state, county and municipal governmental bodies or their subdivisions respecting the use of the Parking Facility. Landlord reserves the right to adopt, modify and enforce reasonable rules (Rules) governing the use of the Parking Facility from time to time including any key-card, sticker or other identification or entrance system and hours of operation. The Rules set forth herein are currently in effect. Landlord may refuse to permit any person who violates such Rules to park in the Parking Facility, and any violation of the Rules shall subject the car to removal from the Parking Facility. |
4. | Unless specified to the contrary above, the parking spaces hereunder shall be provided on a non-designated first-come, first-served basis. Tenant acknowledges that Landlord has no liability for claims arising through acts or omissions of any independent operator of the Parking Facility. Landlord shall have no liability whatsoever for any damage to items located in the Parking Facility, nor for any personal injuries or death arising out of any matter relating to the Parking Facility, and in all events, Tenant agrees to look first to its insurance carrier and to require that Tenants employees look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the Parking Facility. Tenant hereby waives on behalf of its insurance carriers all rights of subrogation against Landlord or Landlords agents. Landlord reserves the right to assign specific parking spaces, and to reserve parking spaces for visitors, small cars, handicapped persons and for other tenants, guests of tenants or other parties, which assignment and reservation or spaces may be relocated as determined by Landlord from time to time, and Tenant and persons designated by Tenant hereunder shall not park in any location designated for such assigned or reserved parking spaces. Tenant acknowledges that the Parking Facility may be closed entirely or in part in order to make repairs or perform maintenance services, or to alter, modify, re-stripe or renovate the Parking Facility, or if required by casualty, strike, condemnation, act of God, governmental law or requirement or other reason beyond the operators reasonable control. In such event, Landlord shall refund any prepaid parking fee hereunder, prorated on a per diem basis. |
5. | If Tenant shall default under this Parking Agreement, the operator shall have the right to remove from the Parking Facility any vehicles hereunder which shall have been involved or shall have been owned or driven by parties involved in causing such default, without liability therefor whatsoever. In addition, if Tenant shall default under this Parking Agreement, Landlord shall have the right to cancel this Parking Agreement on 10 days written notice, unless within such 10 day period, Tenant cures such default. If Tenant defaults with respect to the same term or condition under this Parking Agreement more than 3 times during any 12 month period, and Landlord notifies Tenant thereof promptly after each such default, the next default of such term or condition during the succeeding 12 month period, shall, at Landlords election, constitute an incurable default. Such cancellation right shall be cumulative and in addition to any other rights or remedies available to Landlord at law or equity, or provided under the Lease (all of which rights and remedies under the Lease are hereby incorporated herein, as though fully set forth). Any default by Tenant under the Lease shall be a default under this Parking Agreement, and any default under this Parking Agreement shall be a default under the Lease. |
RULES
(i) | Parking Facility hours shall be 6:00 a.m. to 8:00 p.m., however, Tenant shall have access to the Parking Facility on a 24 hour basis, 7 days a week. Tenant shall not store or permit its employees to store any automobiles in the Parking Facility without the prior written consent of the operator. Except |
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for emergency repairs, Tenant and its employees shall not perform any work on any automobiles while located in the Parking Facility, or on the Property. If it is necessary for Tenant or its employees to leave an automobile in the Parking Facility overnight, Tenant shall provide the operator with prior notice thereof designating the license plate number and model of such automobile. |
(ii) | Cars must be parked entirety within the stall lines painted on the floor, and only small cars may be parked in areas reserved for small cars. |
(iii) | All directional signs and arrows must be observed. |
(iv) | The speed limit shall be 5 miles per hour. |
(v) | Parking spaces reserved for handicapped persons must be used only by vehicles properly designated. |
(vi) | Parking is prohibited in all areas not expressly designated for parking, including without limitation: |
(a) | Areas not striped for parking |
(b) | aisles |
(c) | where no parking signs are posted |
(d) | ramps |
(e) | loading zones |
(vii) | Parking stickers, key cards or any other devices or forms of identification or entry supplied by the operator shall remain the property of the operator. Such device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking passes and devices are not transferable and any pass or device in the possession of an unauthorized holder will be void. |
(viii) | Monthly fees shall be payable in advance prior to the first day of each month. Failure to do so will automatically cancel parking privileges and a charge at the prevailing daily parking rate will be due. No deductions or allowances from the monthly rate will be made for days on which the Parking Facility is not used by Tenant or its designees. |
(ix) | Parking Facility managers or attendants are not authorized to make or allow any exceptions to these Rules. |
(x) | Every parker is required to park and lock his/her own car. |
(xi) | Loss or theft of parking pass, identification, key cards or other such devices must be reported to Landlord and to the Parking Facility manager immediately. Any parking devices reported lost or stolen found on any authorized car will be confiscated and the illegal holder will be subject to prosecution. Lost or stolen passes and devices found by Tenant or its employees must be reported to the office of the Parking Facility immediately. |
(xii) | Washing, waxing, cleaning or servicing of any vehicle by the customer and/or his agents is prohibited. Parking spaces may be used only for parking automobiles. |
(xiii) | Tenant agrees to acquaint all persons to whom Tenant assigns a parking space with these Rules. |
6. | TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANTS PROPERTY (INCLUDING, WITHOUT LIMITATIONS, ANY LOSS OR DAMAGE TO TENANTS AUTOMOBILE OR THE CONTENTS THEREOF DUE TO THEFT, VANDALISM OR ACCIDENT) ARISING FROM OR RELATED TO TENANTS USE OF THE PARKING FACILITY OR EXERCISE OF ANY RIGHTS UNDER THIS PARKING AGREEMENT, WHETHER OR NOT SUCH LOSS OR DAMAGE RESULTS FROM LANDLORDS ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION. THE LIMITATION ON LANDLORDS LIABILITY UNDER THE PRECEDING SENTENCE SHALL NOT APPLY HOWEVER TO LOSS OR DAMAGE ARISING DIRECTLY FROM LANDLORDS WILLFUL MISCONDUCT. |
7. | Without limiting the provisions of Paragraph 6 above, Tenant hereby voluntarily releases, discharges, waives and relinquishes any and all actions or causes of action for personal injury or property damage occurring to Tenant arising as a result of parking in the Parking Facility, or any activities incidental thereto, wherever or however the same may occur, and further agrees that Tenant will not prosecute any claim for personal injury or property damage against Landlord or any of its officers, agents, servants or employees for any said causes of action. It is the intention of Tenant by this instrument, to exempt and relieve Landlord from liability for personal injury or property damage caused by negligence. |
8. | The provisions of Section 19 of the Lease are hereby incorporated by reference as if fully recited. |
Tenant acknowledges that Tenant has read the provisions of this Parking Agreement, has been fully and completely advised of the potential dangers incidental to parking in the Parking Facility and is fully aware of the legal consequences of agreeing to this instrument.
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Exhibit 10.4
FIRST AMENDMENT
THIS FIRST AMENDMENT (the Amendment) is made and entered into as of , 2009, by and between PACIFICA TOWER LLC, a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant).
RECITALS
A. | Landlord (as successor in interest to EOP-Plaza at La Jolla, L.L.C., a Delaware limited liability company) and Tenant are parties to that certain lease dated April 7, 2006 (the Lease). Pursuant to the Lease, Landlord has leased to Tenant space containing approximately 5,141 rentable square feet (the Premises) described as Suite No. 200 on the 2nd floor of the building located at 4365 Executive Drive, San Diego, California (the Building). |
B. | The Lease by its terms shall expire on April 30, 2010 (Prior Termination Date), and the parties desire to extend the Term of the Lease, all on the following terms and conditions. |
NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants and conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
I. | Remeasurement of Building and Premises. Landlord and Tenant acknowledge and agree that Landlord has remeasured the Building and that, according to such remeasurement, (i) the Rentable Square Footage of the Premises as of the Extension Date (as hereinafter defined) is 5,349 rentable square feet, and (ii) the Rentable Square Footage of the Building is 326,384 square feet. For the period prior to the Extension Date, the Rentable Square Footage of the Premises and the Rentable Square Footage of the Building shall remain as set forth in the Lease and Tenants Pro Rata Share shall not change. However, commencing on the Extension Date and continuing throughout the Extended Term (as hereinafter defined), the Rentable Square Footage of the Premises, the Rentable Square Footage of the Building and Tenants Pro Rata Share for the Premises shall be adjusted to reflect such remeasurement and Tenants Pro Rata Share for the Premises commencing on the Extension Date and ending on the Extended Termination Date shall be 1.639%. |
II. | Extension. The Term of the Lease is hereby extended and shall expire on June 30, 2011 (Extended Termination Date), unless sooner terminated in accordance with the terms of the Lease. That portion of the Term commencing the day immediately following the Prior Termination Date (Extension Date) and ending on the Extended Termination Date shall be referred to herein as the Extended Term. |
III. | Base Rent. As of the Extension Date, the schedule of Base Rent payable with respect to the Premises during the Extended Term is the following: |
Months of Term or Period | Monthly Rate Per Square Foot |
Monthly Base Rent | ||||||
5/1/10 4/30/11 | $ | 2.50 | $ | 13,373.00 | ||||
5/1/11 6/30/11 | $ | 2.58 | $ | 13,800.00 |
All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.
IV. | Expenses and Taxes. For the period commencing on the Extension Date and ending on the Extended Termination Date, Tenant shall be obligated to pay Tenants Pro Rata Share of Expenses and Taxes accruing in connection with the Premises in accordance with the terms of the Lease; provided, however, the Base Year for the computation of Tenants Pro Rata Share of Expenses and Taxes applicable to the Premises is Landlords fiscal year of July 1 through June 30. The Base Year for calculation of Tenants Pro Rata Share of Expenses and Taxes in connection with the Premises shall be July 1, 2009 through June 30, 2010. Notwithstanding the foregoing, Landlord hereby agrees that Tenant shall not be responsible for Tenants Pro Rata Share of Expense and Tax excess accruing during the twelve (12) month period commencing as of the Extension Date. |
V. | Additional Security Deposit. No additional security deposit shall be required in connection with this Amendment. |
VI. | Improvements to Premises. |
A. | Condition of Premises. Tenant is in possession of the Premises and accepts the same as is without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in this Amendment. |
B. | Any construction, alterations or improvements to the Premises shall be performed by Tenant at its sole cost and expense using contractors selected by Tenant and approved by Landlord and shall be governed in all respects by the provisions of Section 8.02 of the Lease. |
VII. | Parking. During the Extended Term, Landlord shall continue to lease to Tenant and Tenant shall continue to lease to Landlord a minimum of 4 non-reserved parking spaces, but no more than 15 non-reserved spaces and 2 reserved parking spaces in the Parking Facility; provided, however, once Tenant leases such non-reserved parking spaces Tenant shall be obligated to lease such spaces for the balance of the Extended Term. Tenant shall continue to pay the parking charges set forth in Exhibit E of the Lease for each parking space utilized during the Extended Term. Thereafter, the stall charge shall be at Landlords scheduled parking rates from time to time. |
VIII. | SDN List. Tenant hereby represents and warrants that neither Tenant nor any officer, director, employee, partner, member or other principal of Tenant (collectively, Tenant Parties) is listed as a Specially Designated National and Blocked Person (SDN) on the list of such persons and entities issued by the U.S. Treasury Office of Foreign Assets Control (OFAC). In the event Tenant or any Tenant Party is or becomes listed as an SDN, Tenant shall be deemed in breach of this Lease and Landlord shall have the right to terminate the Lease immediately upon written notice to Tenant. |
IX. | Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects: |
A. | Right to Extend. Provided that Tenant is not in Default under any provision of this Lease at the time of exercise of the extension right granted herein, and provided further that Tenant is occupying the entire Premises and has not assigned or sublet any of its interest in the Lease (except in connection with a Business Transfer of the Lease to an Affiliate as described in Section 10 of the Lease), Tenant may extend the Term of the Lease for one period of 12 months. Tenant shall exercise its right to extend the Term by and only by delivering to Landlord, not less than 6 months nor more than 9 months prior to the expiration date of the Term, Tenants written notice of its irrevocable commitment to extend (the Commitment Notice). Should Tenant fail timely to deliver the Commitment Notice, then this extension right shall thereupon lapse and be of no further force or effect. |
The Base Rent payable under the Lease during the extension of the Term shall be at the prevailing market rental rate (including periodic adjustments) for comparable and similarly improved office space within Class A office buildings in the University Towne Centre submarket of San Diego as of the commencement of the extension period, based on a reasonable extrapolation of Landlords then-current leasing rates. In no event shall the monthly Base Rent payable for the extension period be less than the Base Rent payable during the month immediately preceding the commencement of such extension period.
Promptly following receipt of the Commitment Notice, Landlord shall prepare an appropriate amendment to the Lease memorializing the extension of the Term in accordance with the foregoing, and Tenant shall duly execute and return same to Landlord within 15 days. If Tenant fails timely to do so, then Landlord, at its sole discretion, may either enforce its rights under this Section or, upon written notice to Tenant, elect to cause Tenants right to extend to be extinguished, in which event this Lease shall terminate as of the originally scheduled date of expiration. Should Landlord elect the latter, then this Lease shall terminate upon the scheduled date of expiration and Tenants rights under this paragraph shall be of no further force or effect.
Any attempt to assign or transfer any right or interest created by this paragraph to other than a Business Transfer shall be void from its inception. Tenant shall have no other right to extend the Term beyond the single 12 month extension created by this paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any extension of the Term, whether created by an amendment to this Lease or by a holdover of the Premises by Tenant, or otherwise, shall be deemed a part of, and not in addition to, any duly exercised extension period permitted by this paragraph. Tenants Right to Extend is subject and subordinate to the expansion rights (whether such rights are designated as a right of first offer, right of first refusal, expansion option or otherwise) of any tenant of the Building existing on the date hereof. Time is specifically made of the essence of this Section.
B. | Fitness Center. Subject to the provisions of this Section, so long as Tenant is not in Default under the Lease, and provided Tenants employees execute Landlords standard waiver of liability form and pay the applicable one time or monthly fee, if any, then Tenants employees (the Fitness Center Users) shall be entitled to use the fitness center (the Fitness Center) in the buildings located at 4365 Executive Drive, San Diego, California; 4350 La Jolla Village Drive, San Diego, California; and, 4370 La Jolla Village Drive, San Diego, California. The use of the Fitness Center shall be subject to the reasonable rules and regulations (including rules regarding hours of use) established from time to time by Landlord for the Fitness Center. Landlord and Tenant acknowledge that the use of the Fitness Center by the Fitness Center Users shall be at their own risk and that the terms and provisions of Section 12 of the Lease shall apply to Tenant and the Fitness Center Users use of the Fitness Center. The costs of operating, maintaining and repairing the Fitness Center may be included as part of Expenses and Taxes. |
Tenant acknowledges that the provisions of this Section shall not be deemed to be a representation by Landlord that Landlord shall continuously maintain the Fitness Center (or any other fitness facility) throughout the Term of the Lease, and Landlord shall have the right, at Landlords sole discretion, to expand, contract, eliminate or otherwise modify the Fitness Center. No expansion, contraction, elimination or modification of the Fitness Center, and no termination of Tenants or the Fitness Center Users rights to the Fitness Center shall entitle Tenant to an abatement or reduction in Base Rent, or constitute a constructive eviction, or result in an event of default by Landlord under the Lease. |
C. | Shower Facility. Subject to the provisions of this Section, so long as Tenant is not in Default under the Lease, Tenant shall be entitled to use the Buildings shower facility (the Shower Facility). The use of the Shower Facility shall be subject to the reasonable rules and regulations (including rules regarding hours of use) established from time to time by Landlord for the Shower Facility. The costs of operating, maintaining and repairing the Shower Facility shall be included as part of Expenses and Taxes. Tenant acknowledges that the provisions of this Section shall not be deemed to be a representation by Landlord that Landlord shall continuously maintain the Shower Facility throughout the Term, and Landlord shall have the right, at Landlords sole discretion, to expand, contract, eliminate or otherwise modify the Shower Facility. In addition, in the event Landlord no longer owns the building located at 4365 Executive Drive, San Diego, California; 4350 La Jolla Village Drive, San Diego, California; and, 4370 La Jolla Village Drive, San Diego, California, the rights of Tenant and the users of the Shower Facility to use the Shower Facility may, at Landlords option, be terminated. No expansion, contraction, elimination or modification of the Shower Facility, and no termination of Tenants or the users of the Shower facility rights to the Shower Facility shall entitle Tenant to an abatement or reduction in Base Rent, constitute a constructive eviction, or result in an event of default by Landlord under the Lease. Tenant hereby voluntarily releases, discharges, waives and relinquishes any and all actions or causes of action for personal injury or property damage occurring to Tenant or its employees or agents arising as a result of the use of the Shower Facility, or any activities incidental thereto, wherever or however the same may occur, and further agrees that Tenant will not prosecute any claim for personal injury or property damage against Landlord or any of its officers, agents, servants or employees for any said causes of action. It is the intention of Tenant with respect to the Shower Facility to exempt and relieve Landlord from liability for personal injury or property damage caused by negligence. |
D. | Building Rules and Regulations. Effective as of the date hereof, the following shall be added to Exhibit C of the Lease: |
24. | Fitness Center Rules. Tenant shall cause its employees (whether members or prospective members of the Fitness Center) to comply with the following Fitness Center rules and regulations (subject to change from time to time as Landlord may solely determine): |
(a) | Membership in the Fitness Center is open to the tenants of 4320 La Jolla Village Drive, San Diego, California; 4330 La Jolla Village Drive, San Diego, California; 4340 La Jolla Village, San Diego, California; 4350 La Jolla Village Drive, San Diego, California; 4370 La Jolla Village Drive, San Diego, California; 4380 La Jolla Village Drive, San Diego, California; and 4365 Executive Drive, San Diego, California, 92121 only. No guests will be permitted to use the Fitness Center without the prior written approval of Landlord or Landlords representative. |
(b) | Fitness Center users are not allowed to be in the Fitness Center other than the hours designated by Landlord from time to time. Landlord shall have the right to alter the hours of use of the Fitness Center, at Landlords sole discretion. |
(c) | All Fitness Center users must execute Landlords Waiver of Liability prior to use of the Fitness Center and agree to all terms and conditions outlined therein. |
(d) | Individual membership and guest keycards to the Fitness Center shall not be shared and shall only be used by the individual to whom such keycard was issued. Failure to abide by this rule may result in immediate termination of such Fitness Center users right to use the Fitness Center. |
(e) | All Fitness Center users and approved guests must have a pre-authorized keycard to enter the Fitness Center. A pre-authorized keycard shall not be issued to a prospective Fitness Center user until receipt by Landlord of Landlords initial fee, if any, for use of the Fitness Center by such Fitness Center user(s). |
(f) | Use of the Fitness Center is a privilege and not a right. Failure to follow gym rules or to act inappropriately while using the facilities shall result in termination of Tenants Fitness Center privileges. |
25. After hours construction may occur in the Building between the hours of 6:00 p.m. and 8:00 am from time to time and Landlord and Tenant shall endeavor to perform any work disruptive to tenants in the Building after business hours.
E. | Deleted Provision. Sections 1 (Renewal Option) of Exhibit D of the Lease shall be deleted in its entirety and of no further force and effect. |
X. | GENERAL. |
A. | Effect of Amendments. The Lease shall remain in full force and effect except to the extent that it is modified by this Amendment. |
B. | Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant and can be changed only by a writing signed by Landlord and Tenant. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any rent abatement, improvement allowance, leasehold improvements, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. |
C. | Counterparts. If this Amendment is executed in counterparts, each is hereby declared to be an original; all, however, shall constitute but one and the same amendment. In any action or proceeding, any photographic, photostatic, or other copy of this Amendment may be introduced into evidence without foundation. |
D. | Defined Terms. All words commencing with initial capital letters in this Amendment and defined in the Lease shall have the same meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment, |
E. | Authority. If Tenant is a corporation, limited liability company or partnership, or is comprised of any of them, each individual executing this Amendment for the corporation, limited liability company or partnership represents that he or she is duly authorized to execute and deliver this Amendment on behalf of such entity and that this Amendment is binding upon such entity in accordance with its terms. |
F. | Attorneys Fees. The provisions of the Lease respecting payment of attorneys fees shall also apply to this Amendment. |
G. | Execution of Amendment. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. |
H. | Nondisclosure of Terms. Tenant agrees that neither Tenant nor its agents or any other parties acting on behalf of Tenant shall disclose any matters set forth in this Amendment or disseminate or distribute any information concerning the terms, details or conditions hereof to any person, firm or entity without obtaining the express written consent of Landlord. |
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
LANDLORD: | TENANT: | |||||||
PACIFICA TOWER LLC, a Delaware limited liability company |
CONATUS PHARMACEUTICALS INC., a Delaware corporation | |||||||
By: | By: |
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| |||||||
Steven M. Case | Printed Name: | Steven J. Mento | ||||||
Executive Vice President | Title: | Pres. & CEO | ||||||
Office Properties | ||||||||
By: | By: |
| ||||||
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| |||||||
Michael T. Bennett | Printed Name: | CHARLES J. CASHION | ||||||
Senior Vice President, Operations | Title: | SVP & CFO | ||||||
Office Properties |
Exhibit 10.5
May 9, 2011
Mr. Charles J. Chasion
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
RE: Lease Amendment | Conatus Pharmaceuticals Inc. 4365 Executive Drive, Suite 200 San Diego, CA 92121 |
|||
Dear Charles:
Enclosed for your records is a fully-executed Second Amendment to Lease for the above-referenced premises.
Should you have any questions regarding the day-to-day operations of the building or services available at The Plaza, please call your property manager, Cindy Devlin, at (858) 658-7706 or do not hesitate to call me at (858) 658-7743.
The Irvine Company LLC is pleased you selected The Plaza for your continued office needs. We look forward to continuing a mutually beneficial business relationship with servicing the office needs of Conatus Pharmaceuticals Inc. in the future.
Sincerely,
Scott Diggs
Lic. 01368593
Leasing Director
Irvine Realty Company
As agent for Landlord
:TF
c: | Cindy Devlin, Property Manager |
Enclosures
4365 Executive Drive, Suite 100, San Diego, CA 92121 858.658.7740
SECOND AMENDMENT
THIS SECOND AMENDMENT (the Amendment) is made and entered into as of May 2, 2011, by and between PACIFICA TOWER LLC, a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant).
RECITALS
A. | Landlord (as successor in interest to EOP-Plaza at La Jolla, L.L.C., a Delaware limited liability company) and Tenant are parties to that certain lease dated April 7, 2006, which lease has been previously amended by a First Amendment dated November 30, 2009 (First Amendment) (collectively, the Lease). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 5,349 rentable square feet (the Premises) described as Suite No. 200 on the 2nd floor of the building located at 4365 Executive Drive, San Diego, California, 92121 (the Building). |
B. | The Lease by its terms shall expire on June 30, 2011 (Second Prior Termination Date), and the parties desire to extend the Term of the Lease, all on the following terms and conditions. |
NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants and conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
I. | Extension. The Term of the Lease is hereby extended and shall expire on June 30, 2012 (Second Extended Termination Date), unless sooner terminated in accordance with the terms of the Lease. That portion of the Term commencing the day immediately following the Second Prior Termination Date (Second Extension Date) and ending on the Second Extended Termination Date shall be referred to herein as the Second Extended Term. |
II. | Base Rent. As of the Second Extension Date, the schedule of Base Rent payable with respect to the Premises during the Second Extended Term is the following: |
Months of Term or Period | Monthly Rate Per Square Foot |
Monthly Base Rent | ||||||
7/1/11 6/30/12 | $ | 2.35 | $ | 12,570.00 |
All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.
III. | Expenses and Taxes. For the period commencing on the Second Extension Date and ending on the Second Extended Termination Date, Tenant shall be obligated to pay Tenants Pro Rata Share of Expenses and Taxes accruing in connection with the Premises in accordance with the terms of the Lease, as amended. |
IV. | Additional Security Deposit. No additional security deposit shall be required in connection with this Amendment. |
V. | Improvements to Premises. |
A. | Condition of Premises. Tenant is in possession of the Premises and accepts the same as is without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in this Amendment. |
B. | Any construction, alterations or improvements to the Premises shall be performed by Tenant at its sole cost and expense using contractors selected by Tenant and approved by Landlord and shall be governed in all respects by the provisions of Section 8.02 of the Lease. |
VI. | Parking. Notwithstanding any contrary provision in Exhibit E to the Lease, Parking Agreement as amended, effective as of the Second Extension Date, Landlord shall lease to Tenant, and Tenant shall lease from Landlord, a minimum of 4, but no more than 13, non-reserved parking spaces and 4 reserved parking spaces at the following rates: (i) $50.00 per non-reserved stall per month utilized, and (ii) $175.00 per reserved stall per month through the Second Extended Term. Thereafter, the stall charge shall be at Landlords scheduled parking rates from time to time. |
VII. | SDN List. Tenant hereby represents and warrants that neither Tenant nor any officer, director, employee, partner, member or other principal of Tenant (collectively, Tenant Parties) is listed as a Specially Designated National and Blocked Person (SDN) on the list of such persons and entities issued by the U.S. Treasury Office of Foreign Assets Control (OFAC). In the event Tenant or any Tenant Party is or becomes listed as an SDN, Tenant shall be deemed in breach of this Lease and Landlord shall have the right to terminate the Lease immediately upon written notice to Tenant. |
1
VIII. | Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects: |
A. | Payment and Notice. Landlords addresses for payment of rent and notices in accordance with Article I, Item 13 (Basic Lease Provisions) shall be deleted in their entirety and the following substituted in lieu thereof: |
Pacifica Tower LLC
Department #6974
Los Angeles, CA 90084-6974
Notice Address:
Pacifica Tower LLC,
c/o The Irvine Company LLC
4365 Executive Drive, Suite 100
San Diego, CA 92121
Attn: Property Manager
with a copy of notices to:
THE IRVINE COMPANY LLC
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Senior Vice President, Operations,
Office Properties/San Diego
B. | Deleted Provision. Effective as of the date hereof, Article IX, Section 1 (Right to Extend) of the First Amendment shall be deleted in its entirety and of no further force and effect. |
X. | GENERAL. |
A. | Effect of Amendments. The Lease shall remain in full force and effect except to the extent that it is modified by this Amendment. |
B. | Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant and can be changed only by a writing signed by Landlord and Tenant. There have been no additional oral or written representations or agreements. Linder no circumstances shall Tenant be entitled to any rent abatement, improvement allowance, leasehold improvements, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. |
C. | Counterparts. If this Amendment is executed in counterparts, each is hereby declared to be an original; all, however, shall constitute but one and the same amendment. In any action or proceeding, any photographic, photostatic, or other copy of this Amendment may be introduced into evidence without foundation. |
D. | Defined Terms. All words commencing with initial capital letters in this Amendment and defined in the Lease shall have the same meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment. |
E. | Authority. If Tenant is a corporation, limited liability company or partnership, or is comprised of any of them, each individual executing this Amendment for the corporation, limited liability company or partnership represents that he or she is duly authorized to execute and deliver this Amendment on behalf of such entity and that this Amendment is binding upon such entity in accordance with its terms. |
F. | Attorneys Fees. The provisions of the Lease respecting payment of attorneys fees shall also apply to this Amendment. |
G. | Execution of Amendment. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. |
H. | Nondisclosure of Terms. Tenant agrees that neither Tenant nor its agents or any other parties acting on behalf of Tenant shall disclose any matters set forth in this Amendment or disseminate or distribute any information concerning the terms, details or conditions hereof to any person, firm or entity without obtaining the express written consent of Landlord. |
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
LANDLORD: | TENANT: | |||||||
PACIFICA TOWER LLC, | CONATUS PHARMACEUTICALS INC., | |||||||
a Delaware limited liability company | a Delaware corporation | |||||||
By: |
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By: |
![]() | |||||
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| |||||||
Steven M. Case | Printed Name: | Steven J. Mento | ||||||
Executive Vice President | Title: | Pres. & CEO | ||||||
Office Properties | ||||||||
By: |
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By: |
![]() | |||||
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| |||||||
Michael T. Bennett | Printed Name: | CHARLES J. CASHION | ||||||
Senior Vice President, Operations | Title: | SRVP & CFO | ||||||
Office Properties |
3
Exhibit 10.6
April 2, 2012
Mr. Chuck Cashion
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
RE: Lease Amendment | Conatus Pharmaceuticals Inc. | |
4365 Executive Drive, Suite 200 | ||
San Diego, CA 92121 |
Dear Chuck:
Enclosed for your records is a fully-executed Third Amendment to Lease for the above-referenced premises.
Should you have any questions regarding the day-to-day operations of the building or services available at The Plaza, please call your property manager, Cindy Devlin, at (858) 658-7700.
The Irvine Company LLC is pleased you selected The Plaza for your continued office needs. We look forward to continuing a mutually beneficial business relationship with Conatus Pharmaceuticals Inc.
Sincerely, |
![]() |
Max Blumenthal |
Lic. 01841140 |
Leasing Manager |
Irvine Realty Company |
As agent for Landlord |
:sc |
c: Cindy Devlin, Property Manager |
Enclosure |
4365 Executive Drive, Suite 100, San Diego, CA 92121 858.658.7740
FULLY-EXECUTED
THIRD AMENDMENT
THIS THIRD AMENDMENT (the Amendment) is made and entered into as of March 28, 2012, by and between PACIFICA TOWER LLC, a Delaware limited liability company (Landlord) and CONATUS PHARMACEUTICALS INC., a Delaware corporation (Tenant).
RECITALS
A. | Landlord (as successor in interest to EOP-Plaza at La Jolla, L.L.C., a Delaware limited liability company) and Tenant are parties to that certain lease dated April 7, 2006, which lease has been previously amended by a First Amendment dated November 30, 2009 and Second Amendment dated May 2, 2011 (collectively, the Lease). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 5,349 rentable square feet (the Premises) described as Suite No. 200 on the 2nd floor of the building located at 4365 Executive Drive, San Diego, California, 92121 (the Building). |
B. | The Lease by its terms shall expire on June 30, 2012 (Third Prior Termination Date), and the parties desire to extend the Term of the Lease, all on the following terms and conditions. |
NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants and conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
I. | Extension. The Term of the Lease is hereby extended and shall expire on June 30, 2013 (Third Extended Termination Date), unless sooner terminated in accordance with the terms of the Lease. That portion of the Term commencing the day immediately following the Third Prior Termination Date (Third Extension Date) and ending on the Third Extended Termination Date shall be referred to herein as the Third Extended Term. |
II. | Base Rent. As of the Third Extension Date, the schedule of Base Rent payable with respect to the Premises during the Third Extended Term is the following: |
Months of Term or Period |
Monthly Rate Per Square Foot |
Monthly Base Rent | ||||||
7/1/12 6/30/13 |
$ | 2.40 | $ | 12,838.00 |
All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.
III. | Expenses and Taxes. For the period commencing on the Third Extension Date and ending on the Third Extended Expiration Date, Tenant shall be obligated to pay Tenants Pro Rata Share of Expenses and Taxes accruing in connection with the Premises in accordance with the terms of the Lease; provided, however, the Base Year for the computation of Tenants Pro Rata Share of Expenses and Taxes applicable to the Premises is Landlords fiscal year of July 1 through June 30. The Base Year for calculation of Tenants Pro Rata Share of Expenses and Taxes in connection with the Premises shall be July 1, 2012 through June 30, 2013. |
IV. | Additional Security Deposit. No additional security deposit shall be required in connection with this Amendment. |
V. | Improvements to Premises. |
A. | Condition of Premises. Tenant is in possession of the Premises and accepts the same as is without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in this Amendment. |
B. | Any construction, alterations or improvements to the Premises shall be performed by Tenant at its sole cost and expense using contractors selected by Tenant and approved by Landlord and shall be governed in all respects by the provisions of Section 8.02 of the Lease. |
VI. | Parking. Notwithstanding any contrary provision in Exhibit E to the Lease, Parking Agreement as amended, effective as of the Third Extension Date, Landlord shall lease to Tenant, and Tenant shall lease from Landlord, a minimum of 4, but no more than 13, non-reserved parking spaces and 4 reserved parking spaces at the following rates: (i) $50.00 per non-reserved stall per month utilized, and (ii) $175.00 per reserved stall per month through the Third Extended Term. Thereafter, the stall charge shall be at Landlords scheduled parking rates from time to time. |
VII. | SDN List. Tenant hereby represents and warrants that neither Tenant nor any officer, director, employee, partner, member or other principal of Tenant (collectively, Tenant Parties) is listed as a Specially Designated National and Blocked Person (SDN) on the list of such persons and entities issued by the U.S. Treasury Office of Foreign Assets Control (OFAC). In the event Tenant or any Tenant Party is or becomes listed as an SDN, Tenant shall be deemed in breach of this Lease and Landlord shall have the right to terminate the Lease immediately upon written notice to Tenant. |
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VIII. | GENERAL. |
A. | Effect of Amendments. The Lease shall remain in full force and effect except to the extent that it is modified by this Amendment. |
B. | Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant and can be changed only by a writing signed by Landlord and Tenant. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any rent abatement, improvement allowance, leasehold improvements, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. |
C. | Counterparts. If this Amendment is executed in counterparts, each is hereby declared to be an original; all, however, shall constitute but one and the same amendment. In any action or proceeding, any photographic, photostatic, or other copy of this Amendment may be introduced into evidence without foundation. |
D. | Defined Terms. All words commencing with initial capital letters in this Amendment and defined in the Lease shall have the same meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment. |
E. | Authority. If Tenant is a corporation, limited liability company or partnership, or is comprised of any of them, each individual executing this Amendment for the corporation, limited liability company or partnership represents that he or she is duly authorized to execute and deliver this Amendment on behalf of such entity and that this Amendment is binding upon such entity in accordance with its terms. |
F. | Attorneys Fees. The provisions of the Lease respecting payment of attorneys fees shall also apply to this Amendment. |
G. | Execution of Amendment. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. |
H. | Nondisclosure of Terms. Tenant agrees that neither Tenant nor its agents or any other parties acting on behalf of Tenant shall disclose any matters set forth in this Amendment or disseminate or distribute any information concerning the terms, details or conditions hereof to any person, firm or entity without obtaining the express written consent of Landlord. |
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written.
LANDLORD: | TENANT: | |||||||
PACIFICA TOWER LLC, | CONATUS PHARMACEUTICALS INC., | |||||||
a Delaware limited liability company | a Delaware corporation | |||||||
By: |
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By: |
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Steven M. Case | Printed Name: | Steven J. Mento | ||||||
Executive Vice President Office Properties | Title: | Pres. & CEO | ||||||
By: |
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By: |
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Michael T. Bennett | Printed Name: | CHARLES CASHION | ||||||
Senior Vice President, Operations Office Properties | Title: | SVP & CFO | ||||||
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Exhibit 10.7
SUBLICENSE AGREEMENT
This Sublicense Agreement (the Agreement) is made and entered into effective as of March 1, 2013 (the Effective Date) by and between Conatus Pharmaceuticals Inc., a Delaware corporation (Conatus), and Idun Pharmaceuticals, Inc., a Delaware corporation (Idun). Conatus and Idun are each referred to herein by name or individually as a Party or collectively as the Parties.
W I T N E S S E T H
WHEREAS, pursuant to that certain Distribution Agreement by and between Idun and Conatus dated January 10, 2013 (Distribution Agreement), Idun conveyed, transferred, assigned and delivered to Conatus, as a distribution with respect to the Idun stock held by Conatus, certain assets relating to its business of researching, developing, conducting clinical studies, seeking regulatory approval for and commercializing the compound Emricasan (as defined below) (the Business) and Conatus acquired and accepted delivery of the assets of the Business.
WHEREAS, Idun has in-licensed certain patent rights and know-how rights from Thomas Jefferson University (University) pursuant to that certain License Agreement dated July 25, 1995, as amended July 1, 1996, as further amended on November 1, 1999 and August 1, 2003 (1995 License) and has the right to sublicense the same.
WHEREAS, Idun has in-licensed certain patent rights and know-how rights from University pursuant to that certain License Agreement dated November 13, 1997, as amended October 29, 1999, as further amended on November 1, 1999 and August 1, 2003 (1997 License) and has the right to sublicense the same.
WHEREAS, Idun previously utilized certain patent rights and know-how rights of the University to screen for and identify the compound Emricasan.
WHEREAS, pursuant to the 1995 License and the 1997 License, Idun is to pay a royalty on any products which were identified using University patent rights and know-how irrespective of whether the manufacture, composition or method of use of such products are covered by Universitys patent rights or know-how.
WHEREAS, pursuant to terms of the Distribution Agreement, the Parties agreed to negotiate and enter into a sublicense agreement under the 1995 License and the 1997 License, wherein Conatus would agree to pay royalties to University on its Net Sales of Emricasan.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth below, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:
1. | DEFINITIONS |
1.1 AAA. The term AAA shall have the meaning set forth in Section 8.2.
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1.2 Affiliate. The term Affiliate shall mean any entity which controls, is controlled by or is under common control with any Party to this Agreement, where control means beneficial ownership of more than fifty percent (50%) of the outstanding shares or securities or the ability otherwise to elect a majority of the board of directors or other managing authority. Notwithstanding the foregoing, for the purposes of this Agreement, neither Party nor its Affiliates shall be deemed an Affiliate of the other Party.
1.3 Auditing Party. The term Auditing Party shall have the meaning set forth in Section 3.7.
1.4 Combination Allocation Portion. The term Combination Allocation Portion means that portion of any amounts received by Conatus, its Affiliates or sublicensees from the Commercial Sale of any Combination Product that results from multiplying the total amount received by Conatus, its Affiliates or sublicensees from such Commercial Sale by a fraction, the numerator of which is the fair market value of Licensed Products included in the Combination Product, and the denominator of which is the sum of the fair market value of Licensed Products and the fair market value of the products or parts which are not Licensed Products. Fair market value shall be determined in good faith by Conatus in the event that no market price is available. In the event that Idun or University shall disagree with Conatus fair market value determination, the Parties hereto agree to submit such disagreement to arbitration pursuant to Section 8.2 hereof.
1.5 Combination Product. The term Combination Product means any product that is developed and sold by Conatus, its Affiliates or sublicensees and is comprised in part of Licensed Products and of one (1) or more other active ingredients or other parts which could be sold separately.
1.6 Commercial Sale. The term Commercial Sale shall mean any transaction that transfers to a purchaser, for value, physical possession and title to Licensed Products, after which transfer the seller has no right or power to determine the purchasers resale price, if any. Transfer of possession and title to an Affiliate or sublicensee shall not constitute a Commercial Sale unless the Affiliate or sublicensee is an end user of Licensed Products.
1.7 Emricasan. The term Emricasan shall mean the caspase inhibitor IDN-6556 (PF3491390) which is currently being developed under the name emricasan and all of its analogs, metabolites, prodrugs, salts, hydrates, solvates, optical isomers, polymorphs and formulations thereof.
1.8 Indemnitees. The term Indemnitees shall have the meaning set forth in Section 4.1.
1.9 Licensed Products. The term Licensed Products shall mean Emricasan but only to the extent the same was identified or developed using the Licensed Technology.
1.10 Licensed Technology. The term Licensed Technology shall mean the Patent Rights and the Technical Information related thereto.
1.11 Net Sales. The term Net Sales shall mean the gross amount received by Conatus and its Affiliates and sublicensees for Commercial Sales of Licensed Products, less (i)
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discounts actually allowed, (ii) commissions paid or allowed to independent third party distributors and agents, (iii) credits for claims, allowances, retroactive price reductions or returned goods, (iv) transportation and delivery charges, including insurance premiums, actually incurred, and (v) taxes (other than franchise or income taxes on the income of Conatus or its Affiliates or sublicensees) or other governmental charges actually paid or withheld.
Net Sales for the Commercial Sale of any Combination Product shall be determined by multiplying the amounts received by Conatus or its Affiliates or sublicensees attributable to Combination Products by the Combination Allocated Portion attributable to such Combination Product.
1.12 Patent Rights. The term Patent Rights shall mean all information, inventions, reagents (e.g., cDNAs, expression plasmids, antibodies) or discoveries covered by the patent applications listed on Schedule A hereto, and any and all patents issuing on any such patent applications, including, without limitation, all substitutions, continuations, continuations-in-part, divisions, reissues, extensions and foreign counterparts of the aforementioned.
1.13 Royalty Term. The term Royalty Term shall have the meaning set forth in Section 3.1.
1.14 Technical Information. The term Technical Information shall mean all know-how, trade secrets, data, processes, procedures, methods, reagents (e.g., DNAs, expression plasmids, antibodies), formulas, protocols and information which are not covered by the Patent Rights, but which are necessary or useful for the commercial exploitation of the Patent Rights, and which University has the lawful right to license and disclose.
1.15 Valid Claim. The term Valid Claim means a claim of a pending patent application or an issued and unexpired patent within the Patent Rights that has not been held unenforceable, unpatentable or invalid by a decision of a court of competent jurisdiction, and that has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise.
2. | LICENSE GRANT |
2.1 Grant. Subject to the terms of this Agreement, the 1995 License and the 1997 License, Idun hereby grants to Conatus and its Affiliates during the term of this Agreement a non-exclusive worldwide sublicense, including the right to grant further sublicenses, to practice the Patent Rights and Technical Information in order to identify and screen Licensed Products. For clarity, the sublicense granted hereunder does not grant Conatus any rights to exploit any product which would earn a royalty under Section 3.3(a) or (c) of the 1995 License or Section 3.3(a) or (c) of the 1997 License.
2.2 Diligence. Conatus shall use reasonable efforts to commercialize Licensed Products. Conatus shall provide directly to University, with a copy to Idun, a report thirty (30) days prior to the end of each yearly anniversary of the Effective Date detailing Conatus efforts to commercialize Licensed Products during the past year.
2.3 1995 License and 1997 License. Notwithstanding anything to the contrary in this Agreement, Conatus understands and agrees (i) that this Agreement is subordinate to the 1995
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License and the 1997 License and the sublicense granted to Conatus under this Agreement is limited in scope to the rights granted to Idun in the 1995 License and 1997 License; (ii) this Agreement may be terminated if the 1995 License or 1997 License Agreement is terminated; (iii) that it will comply with all provisions of the 1995 License and 1997 License relevant to its activities hereunder; (iv) Iduns exercise of its rights under 1995 License and the 1997 License shall not constitute a breach hereunder; (v) it will not take any action that would result in a breach of the 1995 License or 1997 License; and (vi) it will cooperate with and assist Idun to meet its obligations under the 1995 License and 1997 License. Conatus acknowledges that it has been provided with a copy of the 1995 License and the 1997 License.
3. | FEES AND ROYALTIES |
3.1 Royalties. Conatus shall pay directly to University, and provide Idun with proof of payment of the same, a royalty in an amount equal to one half of a percent (0.5%) of Net Sales by Conatus or its Affiliates or sublicensees of Emricasan that is identified or developed using any information, inventions or discoveries covered by any Valid Claim of an issued patent at the time such information, inventions or discoveries were used in the identification or development of Emricasan. Royalty obligations of Conatus shall terminate upon expiration of Iduns royalty obligations under the 1995 License and 1997 License (Royalty Term). Only one (1) royalty shall be due to University with respect to Emricasan, regardless of the number of patents or patent applications that cover Emricasan and are licensed to Conatus under this Agreement.
3.2 Other Payments. Conatus shall pay directly to University, and provide Idun with proof of payment of the same, (i) twenty percent (20%) of any license fees (which shall not include any research and development support payments, milestone payments, royalties or equity payments) received by Conatus in consideration of the sublicense of any Licensed Technology under the 1997 License (as set forth on Schedule A) to any third party (other than an Affiliate of Conatus) or (ii) ten percent (10%) of any license fees (which shall not include any research and development support payments, milestone payments, royalties or equity payments) received by Conatus in consideration of the sublicense of any Licensed Technology under the 1995 License (as set forth on Schedule A) to any third party (other than an Affiliate of Conatus). In the event that, in connection with such sublicense, Conatus grants rights to such third party to technology in addition to the Licensed Technology, the foregoing percentage shall be reduced on a pro rata basis to reflect the proportion that the fair market value of the rights to the Licensed Technology granted by Conatus to such third party bears to the fair market value of the rights to all technology (including the Licensed Technology) granted by Conatus to such third party. Fair market value shall be determined in good faith by Conatus in the event that no market price is available. In the event that Idun shall disagree with Conatus determination of fair market value, the Parties shall resolve such dispute in accordance with Section 8.2 hereof.
3.3 Quarterly Payments; Reports. Royalties shall be payable on a quarterly basis, within sixty (60) days after the end of each calendar quarter, based upon the Net Sales during such calendar quarter, commencing with the calendar quarter in which the first Commercial Sale is made. Conatus shall furnish directly to University, with a copy to Idun, at the same time as each royalty payment is made, a detailed written report of the Net Sales of Licensed Products and the royalty due and payable, on a country-by-country basis, for the calendar quarter upon which the royalty payment is based.
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3.4 Foreign Sales. The remittance of royalties payable on sales outside the United States shall be payable to University in United States Dollar equivalents at the official rate of exchange of the currency of the country from which the royalties are payable, as quoted by the Wall Street Journal for the last business day of the calendar quarter in which the royalties are payable. If the transfer of or the conversion into the United States Dollar equivalent of any such remittance in any such instance is not lawful or possible, the payment of such part of the royalties as is necessary shall be made by the deposit thereof, in the currency of the country where the sale was made on which the royalty was based to the credit and account of University or its nominee in any commercial bank or trust company of Universitys choice located in that country, prompt notice of which shall be given by Conatus to University.
3.5 Taxes. Any tax required to be withheld by Conatus for the account of University and/or Idun, shall be promptly paid by Conatus for and on behalf of University and/or Idun to the appropriate governmental authority, and Conatus shall use its best efforts to furnish University and/or Idun, as applicable, with proof of payment of such tax together with official or other appropriate evidence issued by the appropriate government authority. Any such tax actually paid on (i) Universitys behalf shall be deducted from royalty payments due University and (ii) Iduns behalf shall be reimbursed to Conatus by Idun within sixty (60) days of Iduns receipt of proof of payment of such tax.
3.6 Royalty Credit. Conatus shall be entitled to credit fifty percent (50%) of any royalty paid to a third party by Conatus in order for Conatus to be able to make, use and sell Emricasan; provided, however, in no event will the royalty payable in accordance with Section 3.1 be reduced by more than fifty percent (50%) in any quarter as a result of the credit available to Conatus under this Section 3.6.
3.7 Records. Conatus shall keep full, complete and proper records and accounts of its sales of Licensed Products in sufficient detail to enable the royalties payable hereunder to be determined. Idun and/or University (Auditing Party) shall have the right to appoint an independent certified public accounting firm, to audit Conatus records which are necessary to verify the royalties payable hereunder. While the Auditing Party will endeavor to appoint an accounting firm that is mutually agreeable to the Parties, the appointment shall be at the discretion of the Auditing Party. Such audit shall be at the Auditing Party expense; provided, however, if the audit discloses that the Auditing Party was underpaid royalties by at least ten percent (10%) for any calendar quarter, then Conatus shall reimburse to the Auditing Party any such reasonable audit costs, and shall reimburse University in an amount equal to the additional royalties to which University is entitled as disclosed by the audit and Conatus shall be financially responsible for any audit or additional audit required to determine the extent of such deficiency. The Auditing Party may exercise its right to audit no more frequently than once in any calendar year. The accounting firm shall disclose to the Auditing Party only information relating solely to the accuracy of the royalty payments. Conatus shall preserve and maintain all such records required for audit for a period of three (3) years after the calendar quarter for which the records apply.
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4. | INDEMNIFICATION AND INSURANCE. |
4.1 Indemnification. Conatus agrees to indemnify, hold harmless and defend Idun, its Affiliates, University, its trustees, officers, employees and agents, the sponsors of the research that led to the Licensed Technology and the inventors of the patents and patent applications included in the Patent Rights (collectively, Indemnitees) against any and all damages with respect to any claims, suits, demands, judgments or causes of action (including with respect to claims for personal injury, death or product liability) arising out of (i) the negligent use of the Licensed Technology by Conatus, its Affiliates or sublicensees, (ii) the development or exploitation of Licensed Products by Conatus, its Affiliates or sublicensees, (iii) Conatus or its sublicensees failure to make royalty payments to University or (iv) Conatus or its sublicensees breach of its obligations as a sublicensee under the 1995 License or 1997 License. In the event any such claims, demands or actions are made, Conatus shall defend Indemnitees at Conatus sole expense by counsel selected by Conatus, subject to approval by Idun, which approval is not to be unreasonably withheld.
4.2 Insurance. In addition to the foregoing, from and after the time Conatus or any Affiliate or sublicensee begins clinical trials on Licensed Products, Conatus shall use reasonable commercial efforts to obtain and maintain, during the term of this Agreement, comprehensive general liability insurance, including products liability insurance, with reputable and financially secure insurance carriers to cover the activities of Conatus, its Affiliates and sublicensees, if any, contemplated by this Agreement. Such insurance shall include Idun and University as named insureds, shall require prior notice to Idun and University before cancellation and shall, to the extent reasonably possible, be in an amount which is customarily carried by companies at a comparable stage of development or introduction of new pharmaceutical products.
5. | REPRESENTATIONS AND WARRANTIES; LIMITATION OF LIABILITY |
5.1 Representations and Warranties. Each Party hereby warrants and represents to the other that: (i) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and (ii) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of each Party.
5.2 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
5.3 Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE SUBLICENSE GRANTED PURSUANT TO THIS AGREEMENT OR THE USE OR COMMERCIAL DEVELOPMENT OF THE LICENSED TECHNOLOGY COVERING LICENSED PRODUCTS.
6. | CONFIDENTIALITY |
6.1 Confidentiality. The Parties agree that during the term of this Agreement and any subsequent extension of this Agreement and for a period of three (3) years after it terminates, a
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Party receiving confidential information of the other Party will not use or intentionally disclose such confidential information to any third party without prior written consent of the disclosing Party.
6.2 Exceptions. A Party shall have no obligations with respect to any portion of such confidential information of the other Party which:
(a) is publicly disclosed through no fault of any Party hereto, either before or after it becomes known to the receiving Party; or
(b) was known to the receiving Party prior to the date of this Agreement which knowledge was acquired independently and not from the other Party; or
(c) is subsequently disclosed to the receiving Party in good faith by a third party who has a right to make such a disclosure; or
(d) has been published by a third party as a matter of right; or
(e) is subsequently independently invented or discovered by the receiving party without reference to the other Partys confidential information.
7. | TERM AND TERMINATION |
7.1 Term. Unless terminated sooner in accordance with this Section 7, the term of the license granted pursuant to this Agreement shall expire and this Agreement shall automatically terminate upon the expiration of the Royalty Term.
7.2 Termination For Default. This Agreement may be terminated by Idun if Conatus substantially fails to perform or otherwise materially breaches any of the material terms, covenants or provisions of this Agreement, such termination to be effected by giving written notice of intent to terminate to Conatus stating the grounds therefor. Conatus shall have sixty (60) days thereafter to correct such breach. If such breach is not corrected within said sixty (60) days after notice as aforesaid, then this Agreement shall automatically terminate.
7.3 Rights Upon Expiration or Termination.
(a) In the event of expiration of this Agreement or termination of the Agreement for any reason whatsoever, neither Party shall be relieved from any obligations accrued prior to the date of such expiration or termination, and the rights and obligations of the Parties under Sections 2.3, 3.3, 3.4, 3.5, 3.6, 3.7, 4, 5.2, 5.3, 6, 7.3, 8, and 9 shall survive any expiration or termination of this Agreement.
(b) Upon the expiration of this Agreement at its regularly scheduled expiration date, neither Party shall have any further rights or obligations with respect to this Agreement, other than Conatus shall make any and all final reports and payments for the final quarter period.
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(c) Upon any termination of this Agreement, the rights granted under Section 2 hereof shall terminate. Except as otherwise provided in Section 7.3(d) with respect to work-in-progress, upon such termination Conatus shall discontinue, and shall cause its Affiliates to discontinue, the development, use, marketing and sale of Licensed Products. Upon any such termination, Conatus shall promptly return all materials, samples, documents, information and any other matters which embody or disclose the Patent Rights or Technical Information; provided, however, Conatus shall not be obligated to provide Idun with proprietary information which Conatus can show that it independently acquired or developed. In the event this Agreement is terminated, Conatus shall assign, and hereby assigns, and transfer to Idun all rights under sublicenses granted by Conatus hereunder. In no event will any such sublicensee be responsible for any obligations of Conatus to Idun that arose prior to the termination of this Agreement unless otherwise agreed pursuant to the provisions of the applicable sublicense.
(d) Upon any termination of this Agreement, Conatus shall be entitled to finish any work-in-progress and to sell any completed inventory of Licensed Products covered by this terminated Agreement which remain on hand as of the date of termination, so long as Conatus pays directly to University the royalties applicable to said subsequent sales in accordance with the same terms and conditions as set forth in Section 3; provided, however, no such sales may be made after six (6) months from the date of termination.
8. | CHOICE OF LAW; DISPUTE RESOLUTION. |
8.1 Governing Law. This Agreement is made in accordance with and shall be governed and construed in accordance with the laws of the State of California, without regard to conflicts of laws rules.
8.2 Arbitration. If a dispute arises between the Parties relating to the interpretation or performance of this Agreement or the grounds for the termination thereof, the Parties agree to hold a meeting, attended by individuals with decision-making authority regarding the dispute, to attempt in good faith to negotiate a resolution of the dispute prior to pursuing other available remedies. If, within thirty (30) days after such meeting, the Parties have not succeeded in negotiating a resolution of the dispute, such dispute shall be submitted to final and binding arbitration under the then current Licensing Agreement Arbitration Rules of the American Arbitration Association (AAA), with a panel of three (3) arbitrators in San Diego, California. Such arbitrators shall be selected by the mutual agreement of the Parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The Parties shall bear the costs of arbitration equally unless the arbitrators, pursuant to their right, but not their obligation, require the non-prevailing Party to bear all or any unequal portion of the prevailing Partys costs. The decision of the arbitrators shall be final and may be sued on or enforced by the Party in whose favor it runs in any court of competent jurisdiction at the option of the successful Party. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion conferring their decision. The rights and obligations of the Parties to arbitrate any dispute relating to the interpretation or performance of this Agreement or the grounds for the termination thereof shall survive the expiration or termination of this Agreement for any reason.
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9. | MISCELLANEOUS |
9.1 Entire Agreement. This Agreement, along with the Distribution Agreement, contains the entire agreement and understanding between the Parties with respect to the subject matter hereof, and merges all prior discussions, representations and negotiations with respect to the subject matter of this Agreement.
9.2 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by either Party without the prior written consent of the other Party; provided, however, no consent shall be required with respect to an assignment in the event of a sale of all or substantially all of a Partys assets. This Agreement shall be binding upon and inure to the benefit of Conatus and Idun and their respective assigns and successors in interest.
9.3 Headings. The headings used in this Agreement are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
9.4 Amendment. No amendment or modification hereof shall be valid or binding upon the Parties unless made in writing and signed by both Parties.
9.5 Force Majeure. Any delays in performance by any Party under this Agreement (other than the payment of monies due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to, acts of God, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or sabotage. The Party suffering such occurrence shall immediately notify the other Party and any time for performance hereunder shall be extended by the actual time of delay caused by the occurrence.
9.6 Payments/Notice/Addresses. Any notices to be given hereunder shall be sufficient if signed by the Party (or Partys attorney) and either: (i) delivered in person to the other Party, and/or University if applicable; (ii) mailed certified mail return receipt requested to the other Party, and/or University if applicable; or (iii) faxed to other Party, and/or University if applicable, if the sender has evidence of successful transmission and if the sender promptly sends the original by ordinary mail, in any event to the following addresses.
Any notice or payment required to be given to either Party, and/or University if applicable, shall be deemed to have been properly given and to be effective (i) on the date of delivery if delivered in person, (ii) with respect to any notice, upon receipt of confirmation of delivery if delivered via facsimile or (iii) five (5) days after mailing if mailed by first-class certified mail, postage paid, to the respective addresses given below, or to such other address as it shall designate by written notice given to the other Party.
To University:
University Office for Technology Transfer
Thomas Jefferson University
1020 Locust Street, M34
Philadelphia, PA 19107
Attention: Director, University Office of Technology Transfer
Fax: (215) 923-5835
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With copy to University Counsel at
University Counsel
1020 Walnut Street
Philadelphia, PA 19107
To Idun:
Idun Pharmaceuticals, Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
To Conatus:
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, CA 92121
9.7 Independent Contractors. In making and performing this Agreement, Idun and Conatus act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between Idun and Conatus. At no time shall either Party make commitments or incur any charges or expenses for or in the name of the other Party except as specifically provided herein.
9.8 Severability. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the Parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent.
9.9 Waiver. None of the terms, covenants, and conditions of this Agreement can be waived except by the written consent of the Party waiving compliance.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set forth above.
CONATUS PHARMACEUTICALS INC. | IDUN PHARMACEUTICALS, INC. | |||||||
By: |
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By: |
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Name: | Steven J. Mento, Ph.D. | Name: | Steven J. Mento, Ph.D. | |||||
Title: | Chief Executive Officer | Title: | Chief Executive Officer |
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SCHEDULE A
Licensed Technology
Licensed Technology under the 1995 License:
Country name | Application number |
Patent / Design number |
Title | Idun reference number | ||||
Germany | 96920234 | 69623786.5 | Mch 2, an apoptotic cysteine protease | 403 | ||||
Denmark | 96920234 | 842267 | Mch 2, an apoptotic cysteine protease | 403 | ||||
Europe | 96920234 | 96920234 | Mch 2, an apoptotic cysteine protease | 403 | ||||
France | 96920234 | 842267 | Mch 2, an apoptotic cysteine protease | 403 | ||||
Great Britain | 96920234 | 842267 | Mch 2, an apoptotic cysteine protease | 403 | ||||
Italy | 96920234 | 842267 | Mch 2, an apoptotic cysteine protease | 403 | ||||
U.S.A. | 08/446925 | 5672500 | Mch 2, an apoptotic cysteine protease | 403 | ||||
U.S.A. | 09/146331 | 5958720 | Mch 2, an apoptotic cysteine protease | 403 | ||||
U.S.A. | 08/896885 | 5985640 | Mch 2, an apoptotic cysteine protease | 403 | ||||
U.S.A. | 09/375256 | 6359127 | Mch 2, an apoptotic cysteine protease | 403 | ||||
U.S.A. | 09/376156 | 6407215 | Mch 2, an apoptotic cysteine protease | 403 | ||||
U.S.A. | 09/257218 | 6271361 | Apoptotic protease Mch 6 | 404 | ||||
U.S.A. | 09/311760 | 6274318 | Apoptotic protease Mch 6 | 404 | ||||
U.S.A. | 08/865579 | 6455296 | Apoptotic protease Mch 6 | 404 | ||||
U.S.A. | 10/059749 | 6566505 | Apoptotic protease Mch 6 | 404 | ||||
U.S.A. | 08/556627 | 6462175 | Mch 3, a novel apoptotic protease | 423 | ||||
Australia | 76782/96 | 728859 | Mch 3, a novel apoptotic protease | 423 | ||||
Germany | 96939666.2 | 866866 | Mch 3, a novel apoptotic protease | 423 | ||||
Europe | 96939666.2 | 96939666.2 | Mch 3, a novel apoptotic protease | 423 | ||||
France | 96939666.2 | 866866 | Mch 3, a novel apoptotic protease | 423 | ||||
Great Britain | 96939666.2 | 866866 | Mch 3, a novel apoptotic protease | 423 | ||||
New Zealand | 322796 | 322796 | Mch 3, a novel apoptotic protease | 423 | ||||
U.S.A. | 09/163099 | 6686459 | Mch 3, a novel apoptotic protease | 423 | ||||
U.S.A. | 10/337060 | 6716960 | Mch 3, a novel apoptotic protease | 423 | ||||
Canada | 2237618 | 2237618 | Mch 3, a novel apoptotic protease | 423 | ||||
Canada | 2249233 | 2249233 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
Japan | 2009-2078 | 5085570 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
Australia | 23331/97 | 730412 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
Germany | 97916063.7 | 69723074 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
Europe | 97916063.7 | 97916063.7 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
France | 97916063.7 | 906434 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
Great Britain | 97916063.7 | 906434 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
Japan | 9-533636 | 4350799 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
U.S.A. | 08/665220 | 5786173 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
U.S.A. | 08/618408 | 5851815 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
U.S.A. | 09/291692 | 6287795 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
U.S.A. | 09/952768 | 6730779 | Mch 4 and Mch 5, apoptotic protease | 424 | ||||
U.S.A. | 10/668955 | 6897296 | Mch 4 and Mch 5, apoptotic protease | 424 |
Licensed Technology under the 1997 License:
Country name | Application number |
Patent / Design number |
Title | Idun reference number | ||||
Australia | 21130/99 | 746428 | Recombinant, active caspases and uses | 431 | ||||
U.S.A. | 09/561756 | 6376226 | Recombinant, active caspases and uses | 431 | ||||
U.S.A. | 09/227721 | 6379950 | Recombinant, active caspases and uses | 431 | ||||
U.S.A. | 09/954697 | 6610541 | Recombinant, active caspases and uses | 431 | ||||
Australia | 91219/98 | 747777 | Caspase 14, an apoptotic protease | 434 | ||||
U.S.A. | 09/187789 | 6340740 | Caspase 14, an apoptotic protease | 434 | ||||
U.S.A. | 09/139600 | 6432628 | Caspase 14, an apoptotic protease | 434 | ||||
U.S.A. | 09/989903 | 6797812 | Caspase 14, an apoptotic protease | 434 |
2
Exhibit 10.9
CONATUS PHARMACEUTICALS INC.
2006 EQUITY INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 General. The purpose of the Conatus Pharmaceuticals Inc. 2006 Equity Incentive Plan (the Plan) is to promote the success and enhance the value of Conatus Pharmaceuticals Inc., a Delaware corporation (the Company), by linking the personal interests of the members of the Board, Employees and Consultants of the Company and any Parent or Subsidiary, to those of Company stockholders and by providing such individuals with an incentive for performance to generate returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees and Consultants of the Company and any Parent or Subsidiary upon whose judgment, interest, and special effort the successful conduct of the Companys operation is largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. The following words and phrases shall have the following meanings:
(a) Administrator means the Board or a committee of the Board as described in Article 12.
(b) Award means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Dividend Equivalents award, a Stock Payment award, or a Restricted Stock Unit awards granted to a Participant pursuant to the Plan.
(c) Award Agreement means any written or electronic agreement, contract, or other instrument or document evidencing an Award.
(d) Board means the Board of Directors of the Company.
(e) Change in Control means and includes each of the following:
(i) the acquisition, directly or indirectly, by any person or group (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Exchange Act and the rules thereunder) of beneficial ownership (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors (voting securities) of the Company that represent 50% or more of the combined voting power of the Companys then outstanding voting securities, other than
(A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or
(B) an acquisition of voting securities by the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or
(C) an acquisition of voting securities pursuant to a transaction described in subsection (iii) below that would not be a Change in Control under subsection (iii);
Notwithstanding the foregoing, the following event shall not constitute an acquisition by any person or group for purposes of this Section 2.1(e): an acquisition of the Companys securities by the Company which causes the Companys voting securities beneficially owned by a person or group to represent 50% or more of the combined voting power of the Companys then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of 50% or more of the combined voting power of the Companys then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change in Control; or
(ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c) of this Section 2.1(e)) whose election by the Board 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 two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of a merger, consolidation, reorganization, or business combination, a sale or other disposition of all or substantially all of the Companys assets, or the acquisition of assets or stock of another entity, in each case, other than a transaction
(A) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least 50% of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
(B) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph (iii) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv) the Companys stockholders approve a liquidation or dissolution of the Company.
For purposes of subsection (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Companys stockholders, and for purposes of subsection (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Companys stockholders.
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Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) its sole purpose is to change the state of the Companys incorporation; (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; (iii) it constitutes the Companys initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Administrator in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).
The Administrator shall have full and final authority, which shall be exercised in its sole discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters relating thereto.
(f) Code means the Internal Revenue Code of 1986, as amended from time to time, and the regulations issued thereunder.
(g) Committee means a committee of the Board described in Article 12.
(h) Consultant means any consultant or adviser if:
(i) The consultant or adviser renders bona fide services to the Company or any Parent or Subsidiary;
(ii) The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Companys securities; and
(iii) The consultant or adviser is a natural person who has contracted directly with the Company or any Parent or Subsidiary to render such services.
(i) Disability means a permanent and total disability within the meaning of Section 22(e)(3) of the Code, as it may be amended from time to time.
(j) Dividend Equivalents means a right granted to a Participant pursuant to Article 8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock.
(k) Eligible Individual means any person who is a member of the Board, a Consultant or an Employee, as determined by the Administrator.
(l) Employee means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Parent or Subsidiary.
(m) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time.
(n) Fair Market Value means, as of any date, the value of Stock determined as follows:
(i) If the Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such Stock
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as quoted on such exchange or system for the last market trading day prior to the date of determination for which a closing sales price is reported, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Stock on the date prior to the date of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(o) Incentive Stock Option means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.
(p) Misconduct means the commission of any commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Company (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Company (or any Parent or Subsidiary) to discharge or dismiss any Participant or other person in the service of the Company (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct.
(q) Non-Employee Director means a member of the Board who is not an Employee.
(r) Non-Qualified Stock Option means an Option that is not intended to be or otherwise does not qualify as an Incentive Stock Option.
(s) Option means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.
(t) Parent means any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain at the relevant time, including after the Effective Date (as defined in Section 13.1).
(u) Participant means any Eligible Individual who, as a member of the Board, an Employee or a Consultant, has been granted an Award pursuant to the Plan.
(v) Plan means this Conatus Pharmaceuticals Inc. 2006 Equity Incentive Plan, as it may be amended from time to time.
(w) Public Trading Date means the first date upon which the issuer is subject to the reporting requirements of Section 13 or 15(d)(2) of the Exchange Act.
(x) Restricted Stock means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.
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(y) Restricted Stock Unit means a right to receive a share of Stock during specified time periods granted pursuant to Section 8.3.
(z) Securities Act means the Securities Act of 1933, as amended from time to time.
(aa) Section 409A Award has the meaning set forth in Section 9.1.
(bb) Stock means the common stock of the Company and such other securities of the Company that may be substituted for Stock pursuant to Article 11.
(cc) Stock Appreciation Right or SAR means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value of such number of shares of Stock on the date the SAR was granted as set forth in the applicable Award Agreement.
(dd) Stock Payment means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Section 8.2.
(ee) Subsidiary means any corporation or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company at the relevant time, including after the Effective Date (as defined in Section 13.1).
(ff) Termination of Consultancy means the time when the engagement of a Participant as a Consultant to the Company or a Parent or Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous commencement of employment with the Company or any Parent or Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of the Plan, the Company or any Parent or Subsidiary has an absolute and unrestricted right to terminate a Consultants service at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing.
(gg) Termination of Directorship shall mean the time when a Participant who is a Non-Employee Director ceases to be a member of the Board for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Non-Employee Directors.
(hh) Termination of Employment shall mean the time when the employee-employer relationship between a Participant and the Company or any Parent or Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding: (a) terminations where there is a simultaneous reemployment or continuing employment of a Participant by the Company or any Parent or Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Parent or Subsidiary with the former employee. The Administrator, in its absolute discretion, shall determine the effect of all matters and
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questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.
(ii) Termination of Service shall mean the last to occur of a Participants Termination of Employment, Termination of Directorship or Termination of Consultancy. A Participant shall not be deemed to have a Termination of Service merely because of a change in the capacity in which the Participant renders service to the Company or any Parent or Subsidiary (i.e., a Participant who is an Employee becomes a Consultant) or a change in the entity for which the Participant renders such service (i.e., an Employee of the Company becomes an Employee of a Subsidiary), unless such following such change in capacity or service the Participant is no longer serving as an Employee, Non-Employee Director or Consultant of the Company or any Parent or Subsidiary.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
(a) Subject to Article 11, the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be 1,262,500 shares.
(b) To the extent that an Award terminates, expires, or lapses for any reason, any shares of Stock subject to the Award shall again be available for the grant of an Award pursuant to the Plan. Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available for the grant of an Award pursuant to the Plan. If shares of Stock issued pursuant to Awards are forfeited by a Participant or repurchased by the Company pursuant to Section 6.3 hereof, such shares of Stock shall become available for future grant under the Plan (unless the Plan has terminated). The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan.
(c) Notwithstanding the provisions of this Section 3.1, no shares of Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Section 422 of the Code.
3.2 Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or, on and after the Public Trading Date, Stock purchased on the open market.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Persons eligible to participate in this Plan include all Employees, Consultants and all members of the Board, as determined by the Administrator.
4.2 Actual Participation. Subject to the provisions of the Plan, the Administrator may, from time to time, select from among all Eligible Individuals those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan.
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4.3 Foreign Participants. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Parents or Subsidiaries operate or have Eligible Individuals, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Parents or Subsidiaries shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3.1 of the Plan; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law.
ARTICLE 5
STOCK OPTIONS
5.1 General. The Administrator is authorized to grant Options to Eligible Individuals on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock subject to an Option shall be determined by the Administrator and set forth in the Award Agreement; provided that the exercise price per share for any Option shall not be less than 100% of the Fair Market Value per share of the Stock on the date of the grant.
(b) Time and Conditions of Exercise. The Administrator shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten years. The Administrator shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. The Administrator may extend the term of any outstanding Option in connection with any Termination of Employment, Termination of Directorship or Termination of Consultancy of the Participant holding such Option, or amend any other term or condition of such Option relating to such a Termination of Employment, Termination of Directorship or Termination of Consultancy.
(c) Payment. The Administrator shall determine the methods, terms and conditions by which the exercise price of an Option may be paid, and the form and manner of payment, including, without limitation, payment in the form of cash, a promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Code, shares of Stock previously owned by the Participant or otherwise issuable upon exercise of the Option, or other property acceptable to the Administrator and payment through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an executive officer of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option, or continue any extension of credit with respect to the exercise price of an Option with a loan from the Company or a loan arranged by the Company, in any method which would violate Section 13(k) of the Exchange Act.
(d) Evidence of Grant. All Options shall be evidenced by an Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Administrator.
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5.2 Incentive Stock Options. Incentive Stock Options may be granted only to employees (as defined in accordance with Section 3401(c) of the Code) of the Company or a Subsidiary which constitutes a subsidiary corporation of the Company within Section 424(f) of the Code or a Parent which constitutes a parent corporation of the Company within the meaning of Section 424(e) of the Code and the terms of any Incentive Stock Options granted pursuant to the Plan must comply with the following additional provisions of this Section 5.2 in addition to the requirements of Section 5.1:
(a) Ten Percent Owners. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any subsidiary corporation of the Company or parent corporation of the Company (each within the meaning of Section 424 of the Code) only if such Option is granted at an exercise price per share that is not less than 110% of the Fair Market Value per share of the Stock on the date of the grant and the Option is exercisable for no more than five years from the date of grant.
(b) Transfer Restriction. An Incentive Stock Option shall not be transferable by the Participant other than by will or by the laws of descent or distribution.
(c) Right to Exercise. During a Participants lifetime, an Incentive Stock Option may be exercised only by the Participant.
(d) Failure to Meet Requirements. Any Option (or portion thereof) purported to be an Incentive Stock Option which, for any reason, fails to meet the requirements of Section 422 of the Code shall be considered a Non-Qualified Stock Option.
5.3 Early Exercisability. The Administrator may provide in the terms of a Participants Award Agreement that the Participant may, at any time before the Participants status as an Employee, member of the Board or Consultant terminates, exercise the Option(s) granted to such Participant in whole or in part prior to the full vesting of the Option(s); provided, however, shares of Stock acquired upon exercise of an Option which has not fully vested may be subject to any forfeiture, transfer or other restrictions as the Administrator may determine in its sole discretion.
5.4 Paperless Exercise. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Options by a Participant may be permitted through the use of such an automated system.
ARTICLE 6
RESTRICTED STOCK AWARDS
6.1 Grant of Restricted Stock. The Administrator is authorized to make Awards of Restricted Stock to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. All Awards of Restricted Stock shall be evidenced by an Award Agreement.
6.2 Issuance and Restrictions. Restricted Stock shall be subject to such repurchase restrictions, forfeiture restrictions, restrictions on transferability and other restrictions as the
8
Administrator may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances or in such installments or otherwise as the Administrator determines at the time of the grant of the Award or thereafter.
6.3 Repurchase or Forfeiture. Except as otherwise determined by the Administrator at the time of the grant of the Award or thereafter, upon a Participants Termination of Service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited or subject to repurchase by the Company (or its assignee) under such terms as the Administrator shall determine; provided, however, that the Administrator may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of a Participants Termination of Service, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.
6.4 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse or the Award Agreement may provide that the shares shall be held in escrow by an escrow agent designated by the Company.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Eligible Individual selected by the Administrator. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Administrator shall impose and shall be evidenced by an Award Agreement.
7.2 Terms of Stock Appreciation Rights.
(a) A Stock Appreciation Right shall have a term set by the Administrator. A Stock Appreciation Right shall be exercisable in such installments as the Administrator may determine. A Stock Appreciation Right shall cover such number of shares of Stock as the Administrator may determine. The exercise price per share of Stock subject to each Stock Appreciation Right shall be set by the Administrator.
(b) A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying (i) the amount (if any) by which the Fair Market Value of a share of Stock on the date of exercise of the Stock Appreciation Right exceeds the exercise price per share of the Stock Appreciation Right, by (ii) the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised, subject to any limitations the Administrator may impose.
7.3 Payment and Limitations on Exercise.
(a) Subject to Sections 7.3(b) and (c), payment of the amounts determined under Section 7.2(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Administrator.
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(b) To the extent payment for a Stock Appreciation Right is to be made in cash, the Award Agreement shall, to the extent necessary to comply with the requirements of Section 409A of the Code, specify the date of payment, which may be different than the date of exercise of the Stock Appreciation Right. If the date of payment for a Stock Appreciation Right is later than the date of exercise, the Award Agreement may specify that the Participant be entitled to earnings on such amount until paid.
(c) To the extent any payment under Section 7.2(b) is effected in Stock, it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options.
ARTICLE 8
OTHER TYPES OF AWARDS
8.1 Dividend Equivalents. Any Eligible Individual selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator.
8.2 Stock Payments. Any Eligible Individual selected by the Administrator may receive Stock Payments in the manner determined from time to time by the Administrator; provided that, unless otherwise determined by the Administrator, such Stock Payments shall be made in lieu of base salary, bonus or other cash compensation otherwise payable to such Eligible Individual. The number of shares shall be determined by the Administrator and may be based upon the Performance Goals or other specific performance goals determined appropriate by the Administrator.
8.3 Restricted Stock Units. The Administrator is authorized to make Awards of Restricted Stock Units to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. At the time of grant, the Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. Alternatively, Restricted Stock Units may become fully vested and nonforfeitable pursuant to the satisfaction of one or more Performance Goals or other specific performance goals as the Administrator determines to be appropriate at the time of the grant of the Restricted Stock Units or thereafter, in each case on a specified date or dates or over any period or periods determined by the Administrator. At the time of grant, the Administrator shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the Eligible Individual to whom the Award is granted. On the maturity date, the Company shall transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit that is vested and scheduled to be distributed on such date and not previously forfeited. The Administrator shall specify the purchase price, if any, to be paid by the Participant to the Company for such shares of Stock.
8.4 Term. Except as otherwise provided herein, the term of any Award of Performance Shares, Dividend Equivalents, Stock Payments or Restricted Stock Units shall be set by the Administrator in its discretion.
8.5 Exercise or Purchase Price. The Administrator may establish the exercise or purchase price, if any, of any Award of Restricted Stock Units or Stock Payments; provided, however, that such price shall not be less than the par value of a share of Stock on the date of grant, unless otherwise permitted by applicable state law.
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8.7 Form of Payment. Payments with respect to any Awards granted under Sections 8.1, 8.2 or 8.3 shall be made in cash, in Stock or a combination of both, as determined by the Administrator.
8.8 Award Agreement. All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Administrator and shall be evidenced by a written Award Agreement.
ARTICLE 9
COMPLIANCE WITH SECTION 409A OF THE CODE
9.1 Awards subject to Code Section 409A. Any Award that constitutes, or provides for, a deferral of compensation subject to Section 409A of the Code (a Section 409A Award) shall satisfy the requirements of Section 409A of the Code and this Article 9, to the extent applicable. The Award Agreement with respect to a Section 409A Award shall incorporate the terms and conditions required by Section 409A of the Code and this Article 9.
9.2 Distributions under a Section 409A Award.
(a) Subject to subsection (b), any shares of Stock or other property or amounts to be paid or distributed upon the grant, issuance, vesting, exercise or payment of a Section 409A Award shall be distributed in accordance with the requirements of Section 409A(a)(2) of the Code, and shall not be distributed earlier than:
(i) the Participants separation from service, as determined by the Secretary of the Treasury;
(ii) the date the Participant becomes disabled;
(iii) the Participants death;
(iv) a specified time (or pursuant to a fixed schedule) specified under the Award Agreement at the date of the deferral compensation;
(v) to the extent provided by the Secretary of the Treasury, a change in the ownership or effective control of the Company or a Parent or Subsidiary, or in the ownership of a substantial portion of the assets of the Company or a Parent or Subsidiary; or
(vi) the occurrence of an unforeseeable emergency with respect to the Participant.
(b) In the case of a Participant who is a specified employee, the requirement of paragraph (a)(i) shall be met only if the distributions with respect to the Section 409A Award may not be made before the date which is six months after the Participants separation from service (or, if earlier, the date of the Participants death). For purposes of this subsection (b), a Participant shall be a specified employee if such Participant is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of a corporation any stock of which is publicly traded on an established securities market or otherwise, as determined under Section 409A(a)(2)(B)(i) of the Code and the Treasury Regulations thereunder.
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(c) The requirement of paragraph (a)(vi) shall be met only if, as determined under Treasury Regulations under Section 409A(a)(2)(B)(ii) of the Code, the amounts distributed with respect to the unforeseeable emergency do not exceed the amounts necessary to satisfy such unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such unforeseeable emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).
(d) For purposes of this Section, the terms specified therein shall have the respective meanings ascribed thereto under Section 409A of the Code and the Treasury Regulations thereunder.
9.3 Prohibition on Acceleration of Benefits. The time or schedule of any distribution or payment of any shares of Stock or other property or amounts under a Section 409A Award shall not be accelerated, except as otherwise permitted under Section 409A(a)(3) of the Code and the Treasury Regulations thereunder.
9.4 Elections under Section 409A Awards.
(a) Any deferral election provided under or with respect to an Award to any Eligible Individual, or to the Participant holding a Section 409A Award, shall satisfy the requirements of Section 409A(a)(4)(B) of the Code, to the extent applicable, and, except as otherwise permitted under paragraph (i) or (ii) below, any such deferral election with respect to compensation for services performed during a taxable year shall be made not later than the close of the preceding taxable year, or at such other time as provided in Treasury Regulations.
(i) In the case of the first year in which an Eligible Individual or a Participant holding a Section 409A Award, becomes eligible to participate in the Plan, any such deferral election may be made with respect to services to be performed subsequent to the election with thirty days after the date the Eligible Individual, or the Participant holding a Section 409A Award, becomes eligible to participate in the Plan, as provided under Section 409A(a)(4)(B)(ii) of the Code.
(ii) In the case of any performance-based compensation based on services performed by an Eligible Individual, or the Participant holding a Section 409A Award, over a period of at least twelve months, any such deferral election may be made no later than six months before the end of the period, as provided under Section 409A(a)(4)(B)(iii) of the Code.
(b) In the event that a Section 409A Award permits, under a subsequent election by the Participant holding such Section 409A Award, a delay in a distribution or payment of any shares of Stock or other property or amounts under such Section 409A Award, or a change in the form of distribution or payment, such subsequent election shall satisfy the requirements of Section 409A(a)(4)(C) of the Code, and:
(i) such subsequent election may not take effect until at least twelve months after the date on which the election is made,
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(ii) in the case such subsequent election relates to a distribution or payment not described in Section 9.2(a)(ii), (iii) or (vi), the first payment with respect to such election may be deferred for a period of not less than five years from the date such distribution or payment otherwise would have been made, and
(iii) in the case such subsequent election relates to a distribution or payment described in Section 9.2(a)(iv), such election may not be made less than twelve months prior to the date of the first scheduled distribution or payment under Section 9.2(a)(iv).
9.5 Compliance in Form and Operation. A Section 409A Award, and any election under or with respect to such Section 409A Award, shall comply in form and operation with the requirements of Section 409A of the Code and the Treasury Regulations thereunder.
ARTICLE 10
PROVISIONS APPLICABLE TO AWARDS
10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
10.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event of the Participants Termination of Service, and the Companys authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.
10.3 Limits on Transfer.
(a) Except as otherwise provided by the Administrator pursuant to Section 10.3(b), no right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a Parent or Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Parent or Subsidiary. Except as otherwise provided by the Administrator pursuant to Section 10.3(b), no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution, unless and until such Award has been exercised, or the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed.
(b) Notwithstanding Section 10.3(a), the Administrator, in its sole discretion, may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to any one or more Permitted Transferees (as defined below), subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution; (ii) any Award which is transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award); and (iii) the Participant and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal and state securities laws and (C) evidence the transfer. For purposes of this Section 10.3(b), Permitted Transferee shall mean, with respect to a Participant, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person
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sharing the Participants household (other than a tenant or employee), a trust in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests, or any other transferee specifically approved by the Administrator.
10.4 Beneficiaries. Notwithstanding Section 10.3, a Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participants death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If the Participant is married and resides in a community property state, a designation of a person other than the Participants spouse as his or her beneficiary with respect to more than 50% of the Participants interest in the Award shall not be effective without the prior written consent of the Participants spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participants will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Administrator.
10.5 Stock Certificates; Book Entry Procedures.
(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise or purchase of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that a Participant make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(b) Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by applicable law, rule or regulation, the Company shall not deliver to any Participant certificates evidencing shares of Stock issued in connection with any Award or exercise of any Award and instead such shares of Stock will be recorded in the books of the Company (or as applicable, its transfer agent or stock plan administrator).
ARTICLE 11
CHANGES IN CAPITAL STRUCTURE
11.1 Adjustments.
(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization, distribution of Company assets to stockholders
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(other than normal cash dividends), or any other corporate event affecting the Stock or the share price of the Stock, the Administrator shall make such proportionate adjustments to reflect such change with respect to (i) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitation in Section 3.1); (ii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iii) the grant or exercise price per share for any outstanding Awards under the Plan.
(b) In the event of any transaction or event described in Section 11.1(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), or of changes in applicable laws, regulations or accounting principles, and whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles, the Administrator, in its sole discretion and on such terms and conditions as it deems appropriate, either by amendment of the terms of any outstanding Awards or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participants request, is hereby authorized to take any one or more of the following actions:
(i) To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been received upon the exercise of such Award or realization of the Participants rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 11.1(b) the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participants rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;
(ii) To provide that such Award be assumed by the successor or survivor entity, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(iii) To make adjustments in the number and type of shares of Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Restricted Stock Units and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards, and options, rights and awards which may be granted in the future;
(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and
(v) To provide that the Award cannot vest, be exercised or become payable after such event.
11.2 Acceleration Upon a Change in Control. Notwithstanding anything to the contrary contained in Section 11.1, and except as may otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company and a Participant, if a Change in Control occurs and a Participants Awards are not continued, converted, assumed or replaced by (a) the Company or a Parent or Subsidiary, or (b) the surviving or successor entity or its parent or subsidiary, such Awards
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shall become fully exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse immediately prior to such Change in Control. Upon, or in anticipation of, a Change in Control, the Administrator may cause any and all Awards outstanding hereunder to terminate at a specific time in the future, including without limitation, the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Administrator, in its sole and absolute discretion, shall determine. The Administrator shall have sole discretion to determine whether an Award has been continued, converted, assumed or replaced in connection with a Change in Control.
11.3 No Other Rights. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.
ARTICLE 12
ADMINISTRATION
12.1 Administrator. The Plan shall be administered by the Board. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term Administrator shall apply to any person or persons who at the time have the authority to administer the Plan. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Notwithstanding the foregoing, however, from and after the Public Trading Date, a Committee of the Board shall administer the Plan and such Committee shall consist solely of two or more members of the Board each of whom is an outside director, within the meaning of Section 162(m) of the Code and a Non-Employee Director. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all Awards granted to Non-Employee Directors and for purposes of such Awards the term Administrator as used in this Plan shall be deemed to refer to the Board, and (b) the Board or the Committee may delegate its authority hereunder to the extent permitted by Section 12.5. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan except with respect to matters which, following the Public Trading Date, are required to be determined in the sole discretion of the Committee under Rule 16b-3 under the Exchange Act or Section 162(m) of the Code, or any regulations or rules issued thereunder. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.
12.2 Action by the Administrator. A majority of the members of the Administrator shall constitute a quorum. The acts of a majority of the members of the Administrator present at any meeting at which a quorum is present, and, subject to applicable law, acts approved in writing by a majority of the members of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Parent or Subsidiary, the Companys independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
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12.3 Authority of Administrator. Subject to any specific designation in the Plan, the Administrator has the exclusive power, authority and discretion to:
(a) Designate Eligible Individuals to receive Awards;
(b) Determine the type or types of Awards to be granted to each Eligible Individual;
(c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;
(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and
(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.
11.4 Decisions Binding. The Administrators interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.
11.5 Delegation of Authority. Within the scope of such authority, the Board or the Committee may delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than Eligible Individuals who are either (a) covered employees at the time of recognition of income resulting from such Awards, and/or (b) persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (c) subject to Section 16 of the Exchange Act and/or (d) officers of the Company or members of the Board to whom authority to grant or amend Awards has been delegated pursuant to this Section 12.5. At all times, the delegate(s) appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Board or the Committee.
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ARTICLE 13
EFFECTIVE AND EXPIRATION DATE
13.1 Effective Date. The Plan will be effective on the date of the Boards initial adoption of the Plan (the Effective Date). The Plan will be submitted for the approval of the Companys stockholders within twelve months after the Effective Date. Awards may be granted or awarded prior to such stockholder approval, provided that such Awards shall not be exercisable, shall not vest and the restrictions thereon shall not lapse prior to the time when the Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said twelve-month period, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void.
13.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the earlier of (i) the Effective Date or (ii) the date this Plan is approved by the Companys stockholders. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.
ARTICLE 14
AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and Termination. The Board may terminate, amend or modify the Plan at any time and from time to time; provided, however, that to the extent necessary to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. The Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Option holders, the cancellation of any or all outstanding Options under the Plan and to grant in substitution therefor new Options covering the same or different number of shares of Stock but with an exercise price per share based on the Fair Market Value per share of Stock on the new option grant date.
14.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.
ARTICLE 15
GENERAL PROVISIONS
15.1 No Rights to Awards. No Participant, Employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Participants, Employees, and other persons uniformly.
15.2 No Stockholder Rights. Except as otherwise provided herein, a Participant shall have none of the rights of a stockholder with respect to shares of Stock covered by any Award until the Participant becomes the record owner of such shares of Stock.
15.3 Withholding. The Company or any Parent or Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participants employment tax obligations) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Administrator may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company or a Parent or Subsidiary, as applicable,
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withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six months (or such other period as may be determined by the Administrator) after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participants federal, state, local and foreign tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and employment tax purposes that are applicable to such supplemental taxable income.
15.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Parent or Subsidiary to terminate any Participants employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Parent or Subsidiary.
15.5 Unfunded Status of Awards. The Plan is intended to be an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Parent or Subsidiary.
15.6 Indemnification. To the extent allowable pursuant to applicable law, the Administrator (and each member thereof) shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member 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 or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives 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 indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Companys Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
15.7 Relationship to Other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Parent or Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
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15.8 Expenses. The expenses of administering the Plan shall be borne by the Company and its Parents and Subsidiaries.
15.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
15.10 Fractional Shares. No fractional shares of Stock shall be issued and the Administrator shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.
15.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 under the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
15.12 Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption.
15.13 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of California, without regard to the conflicts of law principles thereof.
15.14 Compliance with California Securities Laws. Prior to the Public Trading Date, this Plan is intended to comply with Section 25102(o) of the California Corporations Code and the regulations issued thereunder. Appendix I to the Plan sets forth the requirements under Section 25102(o) of the California Corporations Code and the regulations issued thereunder and is incorporated herein by reference. If any of the provisions contained in this Plan are inconsistent with such requirements or Appendix I, such provisions shall be deemed null and void. The invalidity of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.
15.15 Appendices. The Board may approve such supplements to, or amendments, or appendices to, the Plan as it may consider necessary or appropriate for purposes of compliance with applicable laws or otherwise and such supplements, amendments or appendices shall be considered a part of the Plan; provided, however, that no such supplements, amendments or appendices shall increase the share limitation contained in Section 3.1 of the Plan.
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* * * * *
I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Conatus Pharmaceuticals Inc. on , 2006.
* * * * *
I hereby certify that the foregoing Plan was approved by the stockholders of Conatus Pharmaceuticals Inc. on , 2006.
Executed on this day of , 2006.
|
Secretary, Conatus Pharmaceuticals Inc. |
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APPENDIX I
TO
CONATUS PHARMACEUTICALS INC.
2006 EQUITY INCENTIVE PLAN
California State Securities Law Compliance
Notwithstanding anything to the contrary contained in the Plan, the provisions set forth in this Appendix shall apply to all Awards granted under the Conatus Pharmaceuticals Inc. 2006 Equity Incentive Plan (the Plan) prior to the Public Trading Date. This Appendix shall be of no further force and effect on or after the Public Trading Date. Definitions as set out in Article 2 of the Plan are applicable to this Appendix.
The purpose of this Appendix is to set forth those provisions of the Plan necessary to comply with Section 25102(o) of the California Corporations Code and the regulations issued thereunder. If any of the provisions contained in this Appendix are inconsistent with such requirements, such provisions shall be deemed null and void. The invalidity of any provision of this Appendix shall not affect the validity or enforceability of any other provision of this Appendix, which shall remain in full force and effect.
References to Articles and Sections set forth in this Appendix are to those Articles and Sections of the Plan.
1.1 Term of Awards. The term of each Award shall be no more than ten years from the date of grant thereof.
2.1 Award Exercise or Purchase Price. Except as provided in Article 11, the per share exercise or purchase price for the Stock to be issued upon exercise of an Award shall be such price as is determined by the Administrator, but in the case of an Award granted to a Participant who, at the time of grant of such Award, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent (as defined in Section 175 of the California Corporations Code) or Subsidiary, the per share exercise or purchase price shall be no less than 110% of the Fair Market Value per share on the date of the grant (100% in the case of an Award other than an Option). Notwithstanding the foregoing, Awards may be granted with a per share exercise or purchase price other than as required above pursuant to a merger or other corporate transaction.
3.1 Exercisability. Except with regard to Awards granted to officers, members of the Board, managers or consultants, in no event shall an Award granted hereunder become vested and exercisable at a rate of less than 20% per year over five years from the date the Award is granted, subject to reasonable conditions, such as continuing to be a member of the Board, Employee or Consultant.
4.1 Exercisability Following Termination.
(a) Termination Other Than Death or Disability. If a Participant has a Termination of Service for any reason other than by reason of the Participants Disability or death, such Participant may exercise his or her Award within such period of time as is specified in the Award Agreement to the extent that the Award is vested on the date of termination; provided, however, that prior to the Public Trading Date, such period of time shall not be less than thirty days (but in no event later than the
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expiration of the term of the Award as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for three months following the Participants Termination of Service for any reason other than death or Disability.
(b) Death. If a Participant has a Termination of Service as a result of the Participants death, the Award may be exercised within such period of time as is specified in the Award Agreement; provided, however, that prior to the Public Trading Date, such period of time shall not be less than six months (but in no event later than the expiration of the term of such Award as set forth in the Notice of Grant), by the Participants estate or by a person who acquires the right to exercise the Award by bequest or inheritance, but only to the extent that the Award is vested on the date of death. In the absence of a specified time in the Award Agreement, the Award shall remain exercisable for twelve months following the Participants Termination of Service for death.
(c) Disability of Participant. If a Participant has a Termination of Service as a result of the Participants Disability, the Participant may exercise his or her Award within such period of time as is specified in the Award Agreement to the extent the Award is vested on the date of termination; provided, however, that prior to the Public Trading Date, such period of time shall not be less than six months (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Award shall remain exercisable for twelve months following the Participants Termination of Service for Disability.
(d) Misconduct of Participant. If a Participant has a Termination of Service as a result of the Participants Misconduct, the Award shall terminate immediately and cease to remain outstanding.
5.1 Repurchase Provisions. In the event the Administrator provides that the Company may repurchase Stock acquired upon exercise of an Award upon the occurrence of certain specified events, including, without limitation, a Participants Termination of Service, divorce, bankruptcy or insolvency, then any such repurchase right shall be set forth in the applicable Award Agreement or in another agreement referred to in such agreement and, to the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations (or any successor regulation), any such repurchase right set forth in an Award granted prior to the Public Trading Date to a person who is not an officer, member of the Board, manager or consultant shall be upon the following terms: (i) if the repurchase option gives the Company the right to repurchase the shares upon the Participants Termination of Service at not less than the Fair Market Value of the shares to be purchased on the date of termination of employment or service, then (A) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety days of termination (or in the case of shares issued upon exercise of Awards after such date of termination, within ninety days after the date of the exercise) or such longer period as may be agreed to by the Administrator and the Participant and (B) the right terminates on the Public Trading Date; and (ii) if the repurchase option gives the Company the right to repurchase the Stock upon the Participants Termination of Service at the original purchase price for such Stock, then (A) the right to repurchase at the original purchase price shall lapse at the rate of at least 20% of the shares per year over five (5) years from the date the Award is granted (without respect to the date the Award was exercised or became exercisable) and (B) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety days of termination (or, in the case of shares issued upon exercise of Awards, after such date of termination, within ninety days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant.
6.1 Information Rights. Prior to the Public Trading Date and to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall provide to each
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Participant and to each individual who acquires Stock pursuant to the Plan, not less frequently than annually during the period such Participant has one or more Awards outstanding, and, in the case of an individual who acquires Stock pursuant to the Plan, during the period such individual owns such Stock, copies of annual financial statements. Notwithstanding the preceding sentence, the Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.
7.1 Transferability. Prior to the Public Trading Date, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution or, with respect to Awards other than Incentive Stock Options, as permitted by Rule 701 of the Securities Act.
8.1 Limitation on Number of Shares. Prior to the Public Trading Date, at no time shall the total number of shares of Stock issuable upon exercise of all outstanding Options under the Plan and any shares of Stock provided for under any bonus or similar plan or agreement of the Company exceed 30% of the then-outstanding shares of Stock of the Company, as calculated pursuant to Section 260.140.45 of Title 10 of the California Code of Regulations (or any successor regulation), unless a percentage higher than 30% is approved by at least two-thirds of the outstanding securities of the Company entitled to vote. The number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be reduced to the extent necessary to comply with this provision.
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CONATUS PHARMACEUTICALS INC.
2006 EQUITY INCENTIVE PLAN
APPENDIX
REGARDING PLAN AMENDMENTS
Date of Board Approval |
Date of Shareholder Approval | |||
Initial adoption of plan (1,262,500 shares) |
March 27, 2006 | March 27, 2006 | ||
Increase of share reserve (to 2,250,000 shares) |
October 20, 2006 | October 20, 2006 | ||
Increase of share reserve (to 7,250,000 shares) |
February 9, 2011 | February 9, 2011 | ||
Increase of share reserve (to 8,250,000 shares) |
December 7, 2012 | January 10, 2013 | ||
Increase of share reserve (to 8,500,000 shares) |
January 4, 2013 | January 10, 2013 |
CONATUS PHARMACEUTICALS INC.
2006 EQUITY INCENTIVE PLAN
STOCK OPTION GRANT NOTICE AND
STOCK OPTION AGREEMENT
Conatus Pharmaceuticals Inc. (the Company), pursuant to its 2006 Equity Incentive Plan (the Plan), hereby grants to the holder listed below (Participant), an option to purchase the number of shares of the Companys Stock set forth below (the Option). This Option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement attached hereto as Exhibit A (the Stock Option Agreement) and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Stock Option Agreement.
Participant: |
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Grant Date: |
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Vesting Commencement Date: |
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Exercise Price per Share: | $ |
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Total Exercise Price: | $ |
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Total Number of Shares Subject to the Option: |
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Expiration Date: |
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Type of Option: | ¨ | Incentive Stock Option | ¨ | Non-Qualified Stock Option | ||||
Vesting Schedule: | [To be specified in individual agreements.] |
By his or her signature and the Companys signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement and this Grant Notice. Participant has reviewed the Stock Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan upon any questions arising under the Plan or the Option.
CONATUS PHARMACEUTICALS INC. | PARTICIPANT: | |||||||
By: |
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By: |
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Print Name: | Steven J. Mento, Ph.D. | Print Name: |
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Title: | President and Chief Executive Officer | |||||||
Address: | 4365 Executive Drive, Suite 200 | Address: |
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San Diego, CA 92121 |
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EXHIBIT A
TO STOCK OPTION GRANT NOTICE
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Grant Notice (Grant Notice) to which this Stock Option Agreement (this Agreement) is attached, Conatus Pharmaceuticals Inc. (the Company) has granted to Participant an option under the Companys 2006 Equity Incentive Plan (the Plan) to purchase the number of shares of Stock indicated in the Grant Notice.
ARTICLE I
GENERAL
1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.
1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference.
ARTICLE II
GRANT OF OPTION
2.1 Grant of Option. In consideration of Participants past and/or continued employment with or service to the Company or a Parent or Subsidiary and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the Grant Date), the Company irrevocably grants to Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement. Unless designated as a Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.
2.2 Exercise Price. The exercise price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided, however, that if this Option is designated as an Incentive Stock Option, the price per share of the shares subject to the Option shall not be less than the greater of (i) 100% of the Fair Market Value of a share of Stock on the Grant Date, or (ii) 110% of the Fair Market Value of a share of Stock on the Grant Date in the case of a Participant then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation of the Company or any parent corporation of the Company (each within the meaning of Section 424 of the Code).
ARTICLE III
PERIOD OF EXERCISABILITY
3.1 Commencement of Exercisability.
(a) Subject to Sections 3.3 and 5.8, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.
(b) No portion of the Option which has not become vested and exercisable at the date of Participants Termination of Service shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company and Participant.
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3.2 Duration of Exercisability. The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3.
3.3 Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a) The expiration of ten years from the Grant Date;
(b) If this Option is designated as an Incentive Stock Option and Participant owned (within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation of the Company or parent corporation of the Company (each within the meaning of Section 424 of the Code), the expiration of five years from the date the Option was granted; or
(c) The expiration of three months following the date of Participants Termination of Service, unless such termination occurs by reason of Participants death, Disability or Misconduct;
(d) The expiration of one year following the date of Participants Termination of Service by reason of Participants death or Disability; or
(e) The date of Participants Termination of Service as a result of Participants Misconduct.
Participant acknowledges that an Incentive Stock Option exercised more than three months after Participants termination of status as an Employee, other than by reason of death or Disability, will be taxed as a Non-Qualified Stock Option.
3.4 Special Tax Consequences. Participant acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options, including the Option, are first exercisable for the first time by Participant in any calendar year exceeds $100,000 (or such other limitation as imposed by Section 422(d) of the Code), the Option and such other options shall be treated as not qualifying under Section 422 of the Code but rather shall be considered Non-Qualified Stock Options. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking Options and other incentive stock options into account in the order in which they were granted.
ARTICLE IV
EXERCISE OF OPTION
4.1 Person Eligible to Exercise. Except as provided in Sections 5.2(b) and 5.2(c), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participants personal representative or by any person empowered to do so under the deceased Participants will or under the then applicable laws of descent and distribution.
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4.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3.
4.3 Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company or the Secretarys office of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3:
(a) An Exercise Notice in writing signed by Participant or any other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator. Such notice shall be substantially in the form attached as Exhibit B to the Grant Notice (or such other form as is prescribed by the Administrator); and
(b) Subject to Section 5.1(c) of the Plan:
(i) Full payment (in cash or by check) for the shares with respect to which the Option or portion thereof is exercised; or
(ii) With the consent of the Administrator, by delivery of a full recourse promissory note on such terms and conditions as may be approved by the Administrator; or
(iii) With the consent of the Administrator, by delivery of shares of Stock then issuable upon exercise of the Option having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or
(iv) On and after the Public Trading Date, such payment may be made, in whole or in part, through the delivery of shares of Stock which have been owned by Participant for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or
(v) On and after the Public Trading Date, through the delivery of a notice that Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided, that payment of such proceeds is made to the Company upon settlement of such sale; or
(vi) Subject to any applicable laws, any combination of the consideration provided in the foregoing paragraphs (i), (ii) and (iii); and
(c) A bona fide written representation and agreement, in such form as is prescribed by the Administrator, signed by Participant or the other person then entitled to exercise such Option or portion thereof, stating that the shares of Stock are being acquired for Participants own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that Participant or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and
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agreement referred to above. The Administrator may, in its absolute discretion, take whatever additional actions it deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Administrator may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing Stock issued on exercise of the Option shall bear an appropriate legend referring to the provisions of this subsection (c) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (c) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and
(d) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan; and
(e) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option.
4.4 Conditions to Issuance of Stock Certificates. The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which such Stock is then listed; and
(b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan.
4.5 Rights as Stockholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until such shares shall have been issued by the Company to such holder.
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ARTICLE V
OTHER PROVISIONS
5.1 Administration. The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan and this Agreement.
5.2 Option Not Transferable.
(a) Subject to Section 5.2(b), the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares underlying the Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
(b) Notwithstanding any other provision in this Agreement, with the consent of the Administrator and to the extent the Option is designated as a Non-Qualified Stock Option, the Option may be transferred to, exercised by and paid to one or more Permitted Transferees, subject to the terms and conditions set forth in Section 10.3 of the Plan.
(c) Unless transferred to a Permitted Transferee in accordance with Section 5.2(b), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. Subject to such conditions and procedures as the Administrator may require, a Permitted Transferee may exercise the Option or any portion thereof during Participants lifetime. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participants personal representative or by any person empowered to do so under the deceased Participants will or under the then applicable laws of descent and distribution.
5.3 Lock-Up Period. Participant hereby agrees that, if so requested by the Company or any representative of the underwriters (the Managing Underwriter) in connection with any registration of the offering of any securities of the Company under the Securities Act, Participant shall not sell or otherwise transfer any shares of Stock or other securities of the Company during such period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company (which period shall not be longer than one hundred eighty days) (the Market Standoff Period) following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.
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5.4 Restrictive Legends and Stop-Transfer Orders.
(a) The share certificate or certificates evidencing the shares of Stock purchased hereunder shall be endorsed with any legends that may be required by state or federal securities laws.
(b) Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate stop transfer instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) The Company shall not be required: (i) to transfer on its books any shares of Stock that have been sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of such shares of Stock or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares shall have been so transferred.
5.5 Shares to Be Reserved. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Agreement.
5.6 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the address given beneath the signature of the Companys authorized officer on the Grant Notice, and any notice to be given to Participant shall be addressed to Participant at the address given beneath Participants signature on the Grant Notice. By a notice given pursuant to this Section 5.6, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section 5.6. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
5.7 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
5.8 Stockholder Approval. The Plan will be submitted for approval by the Companys stockholders within twelve months after the date the Plan was initially adopted by the Board. The Option may not be exercised to any extent by anyone prior to the time when the Plan is approved by the stockholders, and if such approval has not been obtained by the end of said twelve month period, the Option shall thereupon be canceled and become null and void.
5.9 Governing Law; Severability. This Agreement shall be administered, interpreted and enforced under the laws of the State of California, without regard to the conflicts of law principles thereof. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
5.10 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
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5.11 Amendments. This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by Participant or such other person as may be permitted to exercise the Option pursuant to Section 4.1 and by a duly authorized representative of the Company.
5.12 No Employment Rights. If Participant is an Employee, nothing in the Plan or this Agreement shall confer upon Participant any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are expressly reserved, to discharge Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company and Participant.
5.13 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
5.14 Notification of Disposition. If this Option is designated as an Incentive Stock Option, Participant shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock acquired under this Agreement if such disposition or transfer is made (a) within two years from the Grant Date with respect to such shares or (b) within one year after the transfer of such shares to him. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
5.15 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
5.16 Entire Agreement. The Plan and this Agreement (including all Exhibits hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
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EXHIBIT B
TO STOCK OPTION GRANT NOTICE
FORM OF EXERCISE NOTICE
Effective as of today, , the undersigned (Participant) hereby elects to exercise Participants option to purchase shares of the Stock (the Shares) of Conatus Pharmaceuticals Inc. (the Company) under and pursuant to the Conatus Pharmaceuticals Inc. 2006 Equity Incentive Plan (the Plan) and the Stock Option Grant Notice and Stock Option Agreement dated , (the Option Agreement). Capitalized terms used herein without definition shall have the meanings given in the Option Agreement.
Grant Date: |
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Number of Shares as to which Option is Exercised: |
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Exercise Price per Share: | $ | |
Total Exercise Price: | $ | |
Certificate to be issued in name of: |
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Cash Payment delivered herewith: | $ (Representing the full Exercise Price for the Shares, as well as any applicable withholding tax) |
Type of Option: | ¨ | Incentive Stock Option | ¨ | Non-Qualified Stock Option |
1. Representations of Participant. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement. Participant agrees to abide by and be bound by their terms and conditions.
2. Rights as Stockholder. 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 shall exist with respect to Shares subject to the Option, notwithstanding the 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 the Shares are issued, except as provided in Article 10 of the Plan.
Participant shall enjoy rights as a stockholder until such time as Participant disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Participant shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Participant shall forthwith cause the certificate(s), if any issued, evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
3. Participants Rights to Transfer Shares.
(a) Before any Shares held by Participant or any permitted transferee (each, a Holder) may be sold, pledged, assigned, hypothecated, transferred, or otherwise disposed of (each, a Transfer), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares proposed to be Transferred on the terms and conditions set forth in this Section (the Right of First
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Refusal). In the event that the Companys Bylaws contain a right of first refusal with respect to the Shares, such right of first refusal shall apply to the Shares to the extent such provisions are more restrictive than the Right of First Refusal set forth in this Section and the Right of First Refusal set forth in this Section shall not in any way restrict the operation of the Companys Bylaws.
(b) In the event any Holder desires to Transfer any Shares, the Holder shall deliver to the Company a written notice (the Notice) stating: (i) the Holders bona fide intention to sell or otherwise Transfer such Shares; (ii) the name of each proposed purchaser or other transferee (Proposed Transferee); (iii) the number of Shares to be Transferred to each Proposed Transferee; and (iv) the price for which the Holder proposes to Transfer the Shares (the Offered Price), and the Holder shall offer such Shares at the Offered Price to the Company or its assignee(s).
(c) Within twenty-five days after receipt of the Notice, the Company and/or its assignee(s) may elect in writing to purchase all, but not less than all, of the Shares proposed to be Transferred to any one or more of the Proposed Transferees by delivery of a written exercise notice to the Holder (a Company Notice). The purchase price will be determined in accordance with subsection (d) below.
(d) The purchase price (Purchase Price) for the Shares repurchased under this Section shall be the Offered Price.
(e) Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within five days after delivery of the Company Notice or in the manner and at the times mutually agreed to by the Company and the Holder. Should the Offered Price specified in the Notice be payable in property other than cash, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If the Holder and the Company cannot agree on such cash value within ten days after the Companys receipt of the Notice, the valuation shall be made by the Board. The payment of the purchase price shall then be held on the later of (i) five days following delivery of the Company Notice or (ii) five days after such valuation shall have been made.
(f) If all or a portion of the Shares proposed in the Notice to be Transferred are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise Transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other Transfer is consummated within sixty days after the date of the Notice and provided further that any such sale or other Transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not Transferred to the Proposed Transferee within such sixty-day period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal as provided herein before any Shares held by the Holder may be sold or otherwise Transferred.
(g) Anything to the contrary contained in this Section notwithstanding, the Transfer of any or all of the Shares during Participants lifetime or upon Participants death by will or intestacy to Participants Immediate Family or a trust for the benefit of Participants Immediate Family shall be exempt from the Right of First Refusal. As used herein, Immediate Family shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister or stepchild (whether or not adopted). In such case, the transferee or other recipient shall receive and hold the Shares so Transferred subject to the provisions of this Section (including the Right of First Refusal) and the Restricted Stock Purchase Agreement, if applicable, and there shall be no further Transfer of such Shares except in accordance with the terms of this Section.
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(h) The Right of First Refusal shall terminate as to all Shares upon the Public Trading Date.
(i) Any transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any Transfer or attempted Transfer of any of the Shares not in accordance with the terms of this Agreement shall be void and the Company may enforce the terms of this Agreement by stop transfer instructions or similar actions by the Company and its agents or designees.
4. Tax Consultation. Participant understands that Participant may suffer adverse tax consequences as a result of Participants purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Participant understands and agrees that the Company shall cause any certificates issued evidencing the Shares shall have the legends set forth below or legends substantially equivalent thereto, together with any other legends that may be required by state or federal securities laws:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (ACT), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate stop transfer instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
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6. Participant Representations. Participant hereby makes the following certifications and representations with respect to the Shares listed above:
(a) Participant is aware of the Companys business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Participant is acquiring these Shares for investment for Participants own account only and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act.
(b) Participant acknowledges and understands that the Shares constitute restricted securities under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participants investment intent as expressed herein. Participant understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the Shares. Participant understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under applicable state securities laws.
(c) Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of restricted securities acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to Participant, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, ninety days thereafter (or such longer period as any market stand-off agreement may require) the securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (i) the resale being made through a broker in an unsolicited brokers transaction or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (ii) the availability of certain public information about the Company, (iii) the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (iv) the timely filing of a Form 144, if applicable.
(d) In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the securities were sold by the Company or the date the securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the securities by an affiliate, or by a non-affiliate who subsequently holds the securities less than two years, the satisfaction of the conditions set forth in sections (i), (ii), (iii) and (iv) of paragraph (c) above.
(e) Participant further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
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that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant understands that no assurances can be given that any such other registration exemption will be available in such event.
7. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
8. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or by the Company forthwith to the Administrator, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Participant.
9. Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in accordance with the provisions set forth in Section 5.6 of the Option Agreement.
11. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
12. Entire Agreement. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
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ACCEPTED BY: CONATUS PHARMACEUTICALS INC. |
SUBMITTED BY PARTICIPANT: | |||||||
By: |
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By: |
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Print Name: | Steven J. Mento, Ph.D. | Print Name: |
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Title: | President and Chief Executive Officer | |||||||
Address: |
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CONSENT OF SPOUSE
I, , spouse of , have read and approve the Option Agreement and this Exercise Notice between my spouse and Conatus Pharmaceuticals Inc. In consideration of granting of the right to my spouse to purchase shares of Conatus Pharmaceuticals Inc. set forth in the Option Agreement and this Exercise Notice, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Option Agreement and this Exercise Notice and agree to be bound by the provisions of the Plan, the Option Agreement and this Exercise Notice insofar as I may have any rights in said agreements or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Exercise Notice.
Dated: , |
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Signature of Spouse |
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CONATUS PHARMACEUTICALS INC.
2006 EQUITY INCENTIVE PLAN
STOCK OPTION GRANT NOTICE AND
STOCK OPTION AGREEMENT
Conatus Pharmaceuticals Inc. (the Company), pursuant to its 2006 Equity Incentive Plan (the Plan), hereby grants to the holder listed below (Participant), an option to purchase the number of shares of the Companys Stock set forth below (the Option). This Option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement attached hereto as Exhibit A (the Stock Option Agreement) and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Stock Option Agreement.
Participant: |
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Grant Date: |
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Vesting Commencement Date: |
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Exercise Price per Share: | $ |
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Total Exercise Price: | $ |
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Total Number of Shares Subject to the Option: |
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Expiration Date: |
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Type of Option: | ¨ | Incentive Stock Option | ¨ | Non-Qualified Stock Option | ||||||
Exercise Schedule: | x | Early Exercise Permitted | ||||||||
Vesting Schedule: | This Option is exercisable immediately, in whole or in part, at such times as are established by the Administrator, conditioned upon Participant entering into a Restricted Stock Purchase Agreement with respect to any unvested shares of Stock. The shares subject to this Option shall vest and/or be released from the Companys Repurchase Option, as set forth in the Restricted Stock Purchase Agreement attached hereto as Exhibit C (the Restricted Stock Purchase Agreement), according to the following schedule: | |||||||||
[To be specified in individual agreements.] |
By his or her signature and the Companys signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement and this Grant Notice. Participant has reviewed the Stock Option Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Stock Option Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator of the Plan upon any questions arising under the Plan or the Option.
CONATUS PHARMACEUTICALS INC. | PARTICIPANT: | |||||||
By: |
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By: |
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Print Name: | Steven J. Mento, Ph.D. | Print Name: |
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Title: | President and Chief Executive Officer | |||||||
Address: | 4365 Executive Drive, Suite 200 | Address: |
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San Diego, CA 92121 |
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EXHIBIT A
TO STOCK OPTION GRANT NOTICE
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Grant Notice (Grant Notice) to which this Stock Option Agreement (this Agreement) is attached, Conatus Pharmaceuticals Inc. (the Company) has granted to Participant an option under the Companys 2006 Equity Incentive Plan (the Plan) to purchase the number of shares of Stock indicated in the Grant Notice.
ARTICLE I
GENERAL
1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.
1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference.
ARTICLE II
GRANT OF OPTION
2.1 Grant of Option. In consideration of Participants past and/or continued employment with or service to the Company or a Parent or Subsidiary and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the Grant Date), the Company irrevocably grants to Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement. Unless designated as a Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.
2.2 Exercise Price. The exercise price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided, however, that if this Option is designated as an Incentive Stock Option, the price per share of the shares subject to the Option shall not be less than the greater of (i) 100% of the Fair Market Value of a share of Stock on the Grant Date, or (ii) 110% of the Fair Market Value of a share of Stock on the Grant Date in the case of a Participant then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation of the Company or any parent corporation of the Company (each within the meaning of Section 424 of the Code).
ARTICLE III
PERIOD OF EXERCISABILITY
3.1 Commencement of Exercisability.
(a) Subject to Sections 3.3 and 5.8, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice. Alternatively, at the election of the Participant, this Option may be exercised in whole or in part at such times as are established by the
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Administrator as to shares of Stock which have not yet vested. Vested shares shall not be subject to the Companys Repurchase Option (as set forth in the Restricted Stock Purchase Agreement). As a condition to exercising this Option for unvested shares of Stock, the Participant shall execute the Restricted Stock Purchase Agreement.
(b) No portion of the Option which has not become vested and exercisable at the date of Participants Termination of Service shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company and Participant.
3.2 Duration of Exercisability. The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3.
3.3 Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a) The expiration of ten years from the Grant Date;
(b) If this Option is designated as an Incentive Stock Option and Participant owned (within the meaning of Section 424(d) of the Code), at the time the Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation of the Company or parent corporation of the Company (each within the meaning of Section 424 of the Code), the expiration of five years from the date the Option was granted; or
(c) The expiration of three months following the date of Participants Termination of Service, unless such termination occurs by reason of Participants death, Disability or Misconduct;
(d) The expiration of one year following the date of Participants Termination of Service by reason of Participants death or Disability; or
(e) The date of Participants Termination of Service as a result of Participants Misconduct.
Participant acknowledges that an Incentive Stock Option exercised more than three months after Participants termination of status as an Employee, other than by reason of death or Disability, will be taxed as a Non-Qualified Stock Option.
3.4 Special Tax Consequences. Participant acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options, including the Option, are first exercisable for the first time by Participant in any calendar year exceeds $100,000 (or such other limitation as imposed by Section 422(d) of the Code), the Option and such other options shall be treated as not qualifying under Section 422 of the Code but rather shall be considered Non-Qualified Stock Options. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking Options and other incentive stock options into account in the order in which they were granted.
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ARTICLE IV
EXERCISE OF OPTION
4.1 Person Eligible to Exercise. Except as provided in Sections 5.2(b) and 5.2(c), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participants personal representative or by any person empowered to do so under the deceased Participants will or under the then applicable laws of descent and distribution.
4.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3.
4.3 Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company or the Secretarys office of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3:
(a) An Exercise Notice in writing signed by Participant or any other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator. Such notice shall be substantially in the form attached as Exhibit B to the Grant Notice (or such other form as is prescribed by the Administrator); and
(b) A Restricted Stock Purchase Agreement, if applicable, substantially in the form attached as Exhibit C to the Grant Notice;
(c) Subject to Section 5.1(c) of the Plan:
(i) Full payment (in cash or by check) for the shares with respect to which the Option or portion thereof is exercised; or
(ii) With the consent of the Administrator, by delivery of a full recourse promissory note on such terms and conditions as may be approved by the Administrator; or
(iii) With the consent of the Administrator, by delivery of shares of Stock then issuable upon exercise of the Option having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or
(iv) On and after the Public Trading Date, such payment may be made, in whole or in part, through the delivery of shares of Stock which have been owned by Participant for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or
(v) On and after the Public Trading Date, through the delivery of a notice that Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided, that payment of such proceeds is made to the Company upon settlement of such sale; or
(vi) Subject to the consent of the Administrator and subject to any applicable laws, any combination of the consideration provided in the foregoing paragraphs (i), (ii) and (iii); and
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(d) A bona fide written representation and agreement, in such form as is prescribed by the Administrator, signed by Participant or the other person then entitled to exercise such Option or portion thereof, stating that the shares of Stock are being acquired for Participants own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that Participant or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Administrator may, in its absolute discretion, take whatever additional actions it deems appropriate to ensure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Administrator may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on an Option exercise does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing Stock issued on exercise of the Option shall bear an appropriate legend referring to the provisions of this subsection (d) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (d) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and
(e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan; and
(f) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option.
4.4 Conditions to Issuance of Stock Certificates. The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which such Stock is then listed; and
(b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which may be in the form of consideration used by Participant to pay for such shares under Section 4.3(b), subject to Section 15.3 of the Plan.
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4.5 Rights as Stockholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
5.1 Administration. The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan and this Agreement.
5.2 Option Not Transferable.
(a) Subject to Section 5.2(b), the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares underlying the Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
(b) Notwithstanding any other provision in this Agreement, with the consent of the Administrator and to the extent the Option is designated as a Non-Qualified Stock Option, the Option may be transferred to, exercised by and paid to one or more Permitted Transferees, subject to the terms and conditions set forth in Section 10.3 of the Plan.
(c) Unless transferred to a Permitted Transferee in accordance with Section 5.2(b), during the lifetime of Participant, only Participant may exercise the Option or any portion thereof. Subject to such conditions and procedures as the Administrator may require, a Permitted Transferee may exercise the Option or any portion thereof during Participants lifetime. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by Participants personal representative or by any person empowered to do so under the deceased Participants will or under the then applicable laws of descent and distribution.
5.3 Lock-Up Period. Participant hereby agrees that, if so requested by the Company or any representative of the underwriters (the Managing Underwriter) in connection with any registration of the offering of any securities of the Company under the Securities Act, Participant shall not sell or otherwise transfer any shares of Stock or other securities of the Company during such period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company (which
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period shall not be longer than one hundred eighty days) (the Market Standoff Period) following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act.
5.4 Restrictive Legends and Stop-Transfer Orders.
(a) The share certificate or certificates evidencing the shares of Stock purchased hereunder shall be endorsed with any legends that may be required by state or federal securities laws.
(b) Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate stop transfer instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) The Company shall not be required: (i) to transfer on its books any shares of Stock that have been sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of such shares of Stock or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares shall have been so transferred.
5.5 Shares to Be Reserved. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Stock as will be sufficient to satisfy the requirements of this Agreement.
5.6 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the address given beneath the signature of the Companys authorized officer on the Grant Notice, and any notice to be given to Participant shall be addressed to Participant at the address given beneath Participants signature on the Grant Notice. By a notice given pursuant to this Section 5.6, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 by written notice under this Section 5.6. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
5.7 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
5.8 Stockholder Approval. The Plan will be submitted for approval by the Companys stockholders within twelve months after the date the Plan was initially adopted by the Board. The Option may not be exercised to any extent by anyone prior to the time when the Plan is approved by the stockholders, and if such approval has not been obtained by the end of said twelve month period, the Option shall thereupon be canceled and become null and void.
5.9 Governing Law; Severability. This Agreement shall be administered, interpreted and enforced under the laws of the State of California, without regard to the conflicts of law principles thereof. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
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5.10 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
5.11 Amendments. This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by Participant or such other person as may be permitted to exercise the Option pursuant to Section 4.1 and by a duly authorized representative of the Company.
5.12 No Employment Rights. If Participant is an Employee, nothing in the Plan or this Agreement shall confer upon Participant any right to continue in the employ of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are expressly reserved, to discharge Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company and Participant.
5.13 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
5.14 Notification of Disposition. If this Option is designated as an Incentive Stock Option, Participant shall give prompt notice to the Company of any disposition or other transfer of any shares of Stock acquired under this Agreement if such disposition or transfer is made (a) within two years from the Grant Date with respect to such shares or (b) within one year after the transfer of such shares to him. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
5.15 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Shares and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
5.16 Entire Agreement. The Plan and this Agreement (including all Exhibits hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
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EXHIBIT B
TO STOCK OPTION GRANT NOTICE
FORM OF EXERCISE NOTICE
Effective as of today, , the undersigned (Participant) hereby elects to exercise Participants option to purchase shares of the Stock (the Shares) of Conatus Pharmaceuticals Inc. (the Company) under and pursuant to the Conatus Pharmaceuticals Inc. 2006 Equity Incentive Plan (the Plan) and the Stock Option Grant Notice and Stock Option Agreement dated , (the Option Agreement). Capitalized terms used herein without definition shall have the meanings given in the Option Agreement.
Grant Date: |
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Number of Shares as to which Option is Exercised: |
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Exercise Price per Share: | $ | |
Total Exercise Price: | $ | |
Certificate to be issued in name of: |
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Cash Payment delivered herewith: | $ (Representing the full Exercise Price for the Shares, as well as any applicable withholding tax) |
Type of Option: | ¨ | Incentive Stock Option | ¨ | Non-Qualified Stock Option |
1. Representations of Participant. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement. Participant agrees to abide by and be bound by their terms and conditions.
2. Rights as Stockholder. 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 shall exist with respect to Shares subject to the Option, notwithstanding the 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 the Shares are issued, except as provided in Article 10 of the Plan.
Participant shall enjoy rights as a stockholder until such time as Participant disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Participant shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Participant shall forthwith cause the certificate(s), if any issued, evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation.
3. Participants Rights to Transfer Shares.
(a) Before any Shares held by Participant or any permitted transferee (each, a Holder) may be sold, pledged, assigned, hypothecated, transferred, or otherwise disposed of (each, a Transfer), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares proposed to be Transferred on the terms and conditions set forth in this Section (the Right of First
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Refusal). In the event that the Companys Bylaws contain a right of first refusal with respect to the Shares, such right of first refusal shall apply to the Shares to the extent such provisions are more restrictive than the Right of First Refusal set forth in this Section and the Right of First Refusal set forth in this Section shall not in any way restrict the operation of the Companys Bylaws.
(b) In the event any Holder desires to Transfer any Shares, the Holder shall deliver to the Company a written notice (the Notice) stating: (i) the Holders bona fide intention to sell or otherwise Transfer such Shares; (ii) the name of each proposed purchaser or other transferee (Proposed Transferee); (iii) the number of Shares to be Transferred to each Proposed Transferee; and (iv) the price for which the Holder proposes to Transfer the Shares (the Offered Price), and the Holder shall offer such Shares at the Offered Price to the Company or its assignee(s).
(c) Within twenty-five days after receipt of the Notice, the Company and/or its assignee(s) may elect in writing to purchase all, but not less than all, of the Shares proposed to be Transferred to any one or more of the Proposed Transferees by delivery of a written exercise notice to the Holder (a Company Notice). The purchase price will be determined in accordance with subsection (d) below.
(d) The purchase price (Purchase Price) for the Shares repurchased under this Section shall be the Offered Price.
(e) Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within five days after delivery of the Company Notice or in the manner and at the times mutually agreed to by the Company and the Holder. Should the Offered Price specified in the Notice be payable in property other than cash, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If the Holder and the Company cannot agree on such cash value within ten days after the Companys receipt of the Notice, the valuation shall be made by the Board. The payment of the purchase price shall then be held on the later of (i) five days following delivery of the Company Notice or (ii) five days after such valuation shall have been made.
(f) If all or a portion of the Shares proposed in the Notice to be Transferred are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise Transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other Transfer is consummated within sixty days after the date of the Notice and provided further that any such sale or other Transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section and the Restricted Stock Purchase Agreement, if applicable, shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not Transferred to the Proposed Transferee within such sixty-day period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal as provided herein before any Shares held by the Holder may be sold or otherwise Transferred.
(g) Anything to the contrary contained in this Section notwithstanding, the Transfer of any or all of the Shares during Participants lifetime or upon Participants death by will or intestacy to Participants Immediate Family or a trust for the benefit of Participants Immediate Family shall be exempt from the Right of First Refusal. As used herein, Immediate Family shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister or stepchild (whether or not adopted). In such case, the transferee or other recipient shall receive and hold the Shares so Transferred subject to the provisions of this Section (including the Right of First Refusal) and the Restricted Stock Purchase Agreement, if applicable, and there shall be no further Transfer of such Shares except in accordance with the terms of this Section.
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(h) The Right of First Refusal shall terminate as to all Shares upon the Public Trading Date.
(i) Any transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any Transfer or attempted Transfer of any of the Shares not in accordance with the terms of this Agreement shall be void and the Company may enforce the terms of this Agreement by stop transfer instructions or similar actions by the Company and its agents or designees.
4. Tax Consultation. Participant understands that Participant may suffer adverse tax consequences as a result of Participants purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Participant understands and agrees that the Company shall cause any certificates issued evidencing the Shares shall have the legends set forth below or legends substantially equivalent thereto, together with any other legends that may be required by state or federal securities laws:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (ACT), NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate stop transfer instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
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6. Participant Representations. Participant hereby makes the following certifications and representations with respect to the Shares listed above:
(a) Participant is aware of the Companys business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Participant is acquiring these Shares for investment for Participants own account only and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act.
(b) Participant acknowledges and understands that the Shares constitute restricted securities under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participants investment intent as expressed herein. Participant understands that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the Shares. Participant understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under applicable state securities laws.
(c) Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of restricted securities acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to Participant, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, ninety days thereafter (or such longer period as any market stand-off agreement may require) the securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (i) the resale being made through a broker in an unsolicited brokers transaction or in transactions directly with a market maker (as said term is defined under the Exchange Act); and, in the case of an affiliate, (ii) the availability of certain public information about the Company, (iii) the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (iv) the timely filing of a Form 144, if applicable.
(d) In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the securities were sold by the Company or the date the securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the securities by an affiliate, or by a non-affiliate who subsequently holds the securities less than two years, the satisfaction of the conditions set forth in sections (i), (ii), (iii) and (iv) of paragraph (c) above.
(e) Participant further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
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that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant understands that no assurances can be given that any such other registration exemption will be available in such event.
7. Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
8. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or by the Company forthwith to the Administrator, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on the Company and on Participant.
9. Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in accordance with the provisions set forth in Section 5.6 of the Option Agreement.
11. Further Instruments. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
12. Entire Agreement. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement, and the Restricted Stock Purchase Agreement, if applicable, constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
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ACCEPTED BY: CONATUS PHARMACEUTICALS INC. |
SUBMITTED BY PARTICIPANT: | |||||||
By: |
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By: |
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Print Name: | Steven J. Mento, Ph.D. | Print Name: |
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Title: | President and Chief Executive Officer | |||||||
Address: |
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CONSENT OF SPOUSE
I, , spouse of , have read and approve the Option Agreement and this Exercise Notice between my spouse and Conatus Pharmaceuticals Inc. In consideration of granting of the right to my spouse to purchase shares of Conatus Pharmaceuticals Inc. set forth in the Option Agreement and this Exercise Notice, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Option Agreement and this Exercise Notice and agree to be bound by the provisions of the Plan, the Option Agreement and this Exercise Notice insofar as I may have any rights in said agreements or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Exercise Notice.
Dated: , |
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Signature of Spouse |
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EXHIBIT C
TO STOCK OPTION GRANT NOTICE
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT is made between (the Purchaser) and Conatus Pharmaceuticals Inc. (the Company), as of , .
RECITALS
(1) Pursuant to the exercise of the Option granted to Purchaser under the Companys 2006 Equity Incentive Plan (the Plan) and pursuant to the Stock Option Agreement (the Option Agreement) dated , , by and between the Company and Purchaser with respect to such grant, which Option Agreement is hereby incorporated by reference, Purchaser has elected to purchase of those shares which have not become vested under the vesting schedule set forth in the Option Agreement (Unvested Shares). The Unvested Shares and the shares subject to the Option Agreement which have become vested are sometimes collectively referred to herein as the Shares.
(2) As required by the Option Agreement, as a condition to Purchasers election to exercise the option, Purchaser must execute this Restricted Stock Purchase Agreement, which sets forth the rights and obligations of the parties with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
(a) In the event of Purchasers Termination of Service (as defined in the Option Agreement), for any reason, including for cause, death, Disability or Misconduct, the Company shall have the right and option to purchase from Purchaser, or Purchasers personal representative, as the case may be, all of Purchasers Unvested Shares as of the date of the Purchasers Termination of Service at the exercise price paid by Purchaser for such Shares in connection with the exercise of the Option (the Repurchase Option).
(b) The Company may exercise its Repurchase Option by delivering, personally or by registered mail, to Purchaser (or his or her transferee or legal representative, as the case may be), within ninety days of the date of the Purchasers Termination of Service, a notice in writing indicating the Companys intention to exercise the Repurchase Option and setting forth a date for closing not later than thirty days from the mailing of such notice. The closing shall take place at the Companys office. At the closing, the holder of the certificates for the Unvested Shares being transferred shall deliver the stock certificate or certificates evidencing the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the Unvested Shares to a bank selected by the Company. The Company shall avail itself of this option by a notice in writing to Purchaser stating the name and address of the bank, date of closing, and waiving the closing at the Companys office.
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(d) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety days following the date of Purchasers Termination of Service, the Repurchase Option shall terminate.
(e) 100% of the Unvested Shares shall initially be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting Schedule set forth in the Option Agreement until all Shares are released from the Repurchase Option. Fractional Shares shall be rounded down to the nearest whole share.
2. Transferability of the Shares; Escrow.
(a) Purchaser hereby authorizes and directs the secretary of the Company, or such other person designated by the Company from time to time, to transfer the Unvested Shares as to which the Repurchase Option has been exercised from Purchaser to the Company.
(b) To insure the availability for delivery of Purchasers Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby appoints the assistant secretary, or any other person designated by the Company from time to time as escrow agent, as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option. If certificates for the Shares are issued, then Purchaser shall, upon execution of this Agreement, deliver and deposit with the assistant secretary of the Company, or such other person designated by the Company from time to time, any share certificate(s) issued representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit C-1. The Unvested Shares and stock assignment shall be held by the assistant secretary in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit C-2 hereto, until the Company exercises its Repurchase Option as provided in Section 1, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. As a further condition to the Companys obligations under this Agreement, the spouse of Purchaser, if any, shall execute and deliver to the Company the Consent of Spouse set forth on the signature page hereto. Upon vesting of the Unvested Shares, the escrow agent shall promptly deliver to Purchaser the certificate or certificates representing such Shares in the escrow agents possession belonging to Purchaser, and the escrow agent shall be discharged of all further obligations hereunder; provided, however, that the escrow agent shall nevertheless retain such certificate or certificates as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement. If the Shares are held in book entry form, then such entry will reflect that the Shares are subject to the restrictions of this Agreement.
(c) The Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by Purchaser with respect to any Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement. Any transfer or attempted transfer of any of the Shares not in accordance with the terms of this Agreement shall be void and the Company may enforce the terms of this Agreement by stop transfer instructions or similar actions by the Company and its agents or designees.
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3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein.
4. Legends. Any share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, the Administrator shall make appropriate and equitable adjustments in the Unreleased Shares subject to the Repurchase Option and the number of Shares, consistent with any adjustment under Section 11.1 of the Plan. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any and all shares of capital stock or other securities or other property or cash which may be issued in respect of, in exchange for, or in substitution of the Shares, and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.
6. Notices. Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at its principal executive office.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.
8. Section 83(b) Elections.
(a) Election for Unvested Shares Purchased Pursuant to a Non-Qualified Stock Option. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of a Non-Qualified Stock Option for Unvested Shares, that unless an election is filed by Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, within thirty days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Shares, at the time the Companys Repurchase Option lapses over the purchase price for the Shares. Purchaser represents that Purchaser has consulted any tax consultant(s) Purchaser deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions.
(b) Election for Unvested Shares Purchased Pursuant to an Incentive Stock Option. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an Incentive Stock Option for Unvested Shares, that unless an election is filed by Purchaser with the Internal Revenue Service and, if necessary, the proper state taxing authorities, within thirty days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions if applicable) to be
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taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase, there will be a recognition of income to the Purchaser, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Shares at the time the Companys Repurchase Option lapses over the purchase price for the Shares. Purchaser represents that Purchaser has consulted any tax consultant(s) Purchaser deems advisable in connection with the purchase of the Shares or the filing of the Election under Section 83(b) and similar tax provisions.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASERS SOLE RESPONSIBILITY AND NOT THE COMPANYS TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASERS BEHALF.
9. Representations. Purchaser has reviewed with his or her own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that Purchaser (and not the Company) shall be responsible for his or her own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
10. Governing Law; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
Purchaser represents that he or she has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under this Agreement.
(Signature Page Follows)
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IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above.
CONATUS PHARMACEUTICALS INC. | ||
By: |
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Title: |
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PURCHASER | ||
By: |
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Name: |
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Address: | ||
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CONSENT OF SPOUSE
I, , spouse of , have read and approve this Agreement between my spouse and Conatus Pharmaceuticals Inc. In consideration of granting of the right to my spouse to purchase shares of Conatus Pharmaceuticals Inc. set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Plan, the Option Agreement and this Agreement insofar as I may have any rights in said agreements or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.
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Signature of Spouse |
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EXHIBIT C-1
TO RESTRICTED STOCK PURCHASE AGREEMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned, , hereby sells, assigns and transfers unto Conatus Pharmaceuticals Inc., a Delaware corporation (the Company), shares of the common stock of the Company standing in its name of the books of said corporation represented by Certificate No. herewith and do hereby irrevocably constitute and appoint to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted Stock Award Agreement between the Company and the undersigned dated , .
Dated: ,
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Print Name: |
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INSTRUCTIONS: Please do not fill in the blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option, as set forth in the Restricted Stock Award Agreement, without requiring additional signatures on the part of Purchaser.
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EXHIBIT C-2
TO RESTRICTED STOCK PURCHASE AGREEMENT
JOINT ESCROW INSTRUCTIONS
,
Secretary
Conatus Pharmaceuticals Inc.
12636 High Bluff Drive, Suite 400
San Diego, CA 92130
As Escrow Agent for both Conatus Pharmaceuticals Inc. (the Company) and the undersigned purchaser of stock of the Company (the Purchaser), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (Agreement) between the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the Company) exercises the Companys Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver the same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or a combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Companys Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchasers attorney-in-fact and agent for the term of this escrow to execute, with respect to such securities, all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.
4. Upon written request of Purchaser, but no more than once per calendar year, unless the Companys Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing the number of shares of stock as are not then subject to the Companys Repurchase Option. Within one hundred twenty days after the date of the Purchasers Termination of Service, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Companys Repurchase Option.
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5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
10. You shall not be liable for the expiration of any rights under any applicable state, federal or local statute of limitations or similar statute or regulation with respect to these Joint Escrow Instructions or any documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefore.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
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15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at such addresses as a party may designate by written notice to each of the other parties hereto.
16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding that body of law pertaining to conflicts of law.
(Signature Page Follows)
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IN WITNESS WHEREOF, these Joint Escrow Instructions shall be effective as of the date first set forth above.
Very truly yours, | ||||
CONATUS PHARMACEUTICALS INC. | ||||
By: |
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Name: | Steven J. Mento, Ph.D. | |||
Title: | President and Chief Executive Officer |
Address: | 4365 Executive Drive Suite 200 San Diego, CA 92121 |
PARTICIPANT: | ||
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Print Name: |
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Address: |
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ESCROW AGENT: | ||
By: |
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Secretary, Conatus Pharmaceuticals Inc. |
Address: | 12636 High Bluff Drive Suite 400 San Diego, CA 92130 |
C-2-4
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this Agreement) is entered into by and between Conatus Pharmaceuticals Inc., a Delaware corporation (the Company), and Steven J. Mento (Employee), and shall be effective as of December 17, 2008 (the Effective Date).
WHEREAS, the Company and Employee are parties to that certain Founders Agreement dated as of July 13, 2005, as amended by that certain First Amendment to Founders Agreement dated as of January 15, 2006 (the Prior Agreement); and
WHEREAS, the Company and Employee desire to replace the Prior Agreement with this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the following meanings:
(a) Board. Board means the Board of Directors of the Company.
(b) Cause. Cause means any of the following:
(i) the commission of an act of fraud, embezzlement or dishonesty by Employee that has a material adverse impact on the Company or any successor or affiliate thereof;
(ii) a conviction of, or plea of guilty or no contest to, a felony by Employee or any crime involving fraud, misappropriation, embezzlement or moral turpitude;
(iii) any unauthorized use or disclosure by Employee of confidential information or trade secrets of the Company or any successor or affiliate thereof that has a material adverse impact on any such entity;
(iv) Employees gross negligence, insubordination or material violation of any duty of loyalty to the Company or any other material misconduct on the part of Employee;
(v) Employees ongoing and repeated failure or refusal to perform or neglect of Employees duties as required by this Agreement, which failure, refusal or neglect continues for fifteen (15) days following Employees receipt of written notice from the Board stating with specificity the nature of such failure, refusal or neglect; or
(vi) Employees breach of any material provision of this Agreement; provided, however, that prior to the determination that Cause under this Section 1(b) has occurred, the Company shall (w) provide to Employee in writing, in reasonable detail, the reasons for the determination that such Cause exists, (x) other than with respect to clause (v) above which specifies the applicable period of time for Employee to remedy his or her breach, afford Employee a reasonable opportunity to remedy any such breach (if such breach is capable of being
remedied), (y) provide Employee an opportunity to be heard prior to the final decision to terminate Employees employment hereunder for such Cause and (z) make any decision that such Cause exists in good faith.
The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Employee for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.
(c) Change of Control. Change of Control means and includes each of the following:
(i) a transaction or series of transactions (other than an offering of common stock of the Company to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules thereunder) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (i) or (iii) of this Section 1(c)) whose election by the Board 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 two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of a merger, consolidation, reorganization, or business combination, a sale or other disposition of all or substantially all of the Companys assets, or the acquisition of assets or stock of another entity, in each case, other than a transaction
(A) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least fifty percent (50%) of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
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(B) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph (iii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv) the Companys stockholders approve a liquidation or dissolution of the Company.
For purposes of subsection (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Companys stockholders, and for purposes of subsection (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Companys stockholders.
Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) its sole purpose is to change the state of the Companys incorporation; (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; (iii) it constitutes the Companys initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).
(d) Code. Code means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other guidance issued thereunder.
(e) Good Reason. Employees resignation for Good Reason means Employees resignation following the occurrence of any of the following events or conditions without Employees written consent:
(i) a material diminution in Employees authority, duties or responsibilities;
(ii) a material diminution in Employees base compensation, except in connection with a general reduction in the base compensation of the Companys or any successors or affiliates personnel with similar status and responsibilities;
(iii) a material change in the geographic location at which Employee must perform his or her duties (and the Company and Employee agree that any requirement that Employee be based at any place outside a 50-mile radius of his or her place of employment as of the Effective Date, except for reasonably required travel on the Companys or any successors or affiliates business that is not materially greater than such travel requirements prior to the Effective Date, shall be considered a material change); or
(iv) any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Employee under this Agreement.
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Notwithstanding the foregoing, Good Reason shall only exist if Employee shall have provided the Company with written notice within ninety (90) days of the initial occurrence of any of the foregoing events or conditions, and the Company or any successor or affiliate fails to eliminate the conditions constituting Good Reason within thirty (30) days after receipt of written notice of such event or condition from Employee. Employees termination by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary. Employees resignation from employment with the Company for Good Reason must occur within twelve (12) months following the initial occurrence of one of the foregoing events or conditions.
(f) Permanent Disability. Employees Permanent Disability shall be deemed to have occurred if Employee shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge his or her duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Employees Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves the right to have the Employee examined by a physician chosen by the Company at the Companys expense.
(g) Stock Awards. Stock Awards means all stock options, restricted stock and such other awards granted pursuant to the Companys stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof, and any founders stock issued to Employee in connection with the formation of the Company.
2. Employment Period. During the term of Employees employment hereunder (the Employment Period), Employee shall be considered an employee of the Company. The Company and Employee acknowledge that Employees employment during the Employment Period will be at-will, as defined under applicable law, and that Employees employment with the Company during the Employment Period may be terminated by either party at any time for any or no reason, with or without notice. If Employees employment during the Employment Period terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement.
3. Services to Be Rendered.
(a) Duties and Responsibilities. Employee shall serve as President and Chief Executive Officer (the CEO) of the Company. In the performance of such duties, Employee shall report directly to the Board and shall be subject to the direction of the Board and to such limits upon Employees authority as the Board may from time to time impose. Employee hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the Board. Employees primary place of work shall be the Companys facility in San Diego, California, or such other location within San Diego County as may be designated by the Board from time to time. Employee shall also render services at such other places within or outside the United States as the Board may direct from time to time. Employee shall be subject to and comply with the policies and procedures generally applicable to employees of the Company to the extent the same are not inconsistent with any term of this Agreement.
(b) Exclusive Services. Employee shall at all times faithfully, industriously and to the best of his or her ability, experience and talent perform to the satisfaction of the Board all of the duties that may be assigned to Employee hereunder and shall devote substantially all of his or her productive time and efforts to the performance of such duties.
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4. Compensation and Benefits During Employment Period. During the Employment Period, the Company shall pay or provide, as the case may be, to Employee the compensation and other benefits and rights set forth in this Section 4.
(a) Base Salary. The Company shall pay to Employee a base salary of $367,500 per year, payable in accordance with the Companys usual pay practices (and in any event no less frequently than bi-monthly). Employees base salary shall be subject to review annually by and at the sole discretion of the Board or its designee.
(b) Annual Bonus. Employee shall be eligible to earn, for each fiscal year of the Company ending during the Employment Period, an annual cash performance bonus (an Annual Bonus) based on Employees and/or the Companys attainment of objective financial or other operating criteria established by the Board or its designee. Upon full attainment of the aforementioned criteria, as determined by the Board or its designee, the Annual Bonus will be equal to forty percent (40%) of Employees then-current base salary actually paid for such fiscal year. The Annual Bonus shall be paid to Employee by the Company between January 1st and March 15th of the calendar year following the end of the fiscal year to which such Annual Bonus relates. Employees receipt of an Annual Bonus shall be conditioned on Employees continued employment with the Company on the date such Annual Bonus is paid. The Annual Bonus shall be pro-rated for any partial fiscal year during the Employment Period. As of the Effective Date, the Companys fiscal year ends on December 31. In the event of any change to the Companys fiscal year, the aforementioned financial or other operating criteria established by the Board or its designee for purposes of determining Employees Annual Bonus shall be adjusted in a manner mutually agreeable to the Company and Employee so as not to disadvantage either party.
(c) Benefits. Employee shall be entitled to participate in benefits under the Companys benefit plans and arrangements, including, without limitation, any employee benefit plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein. The Companys failure to continue provide Employee with benefits substantially equivalent (in terms of benefit levels and/or reward opportunities) to those provided to Employee under each material employee benefit plan, program and practice of the Company as in effect immediately prior to the Effective Date, except in connection with a general reduction in the benefits of the Companys or any successors or affiliates personnel with similar status and responsibilities, shall constitute a material breach of this Agreement by the Company.
(d) Expenses. The Company shall reimburse Employee for reasonable out-of-pocket business expenses incurred in connection with the performance of his or her duties hereunder, subject to (i) such policies as the Company may from time to time establish,
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(ii) Employee furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures, (iii) Employee receiving advance approval from the CEO in the case of expenses for travel outside of North America, and (iv) Employee receiving advance approval from the CEO in the case of expenses (or a series of related expenses) in excess of $10,000. Any amounts payable under this Section 4(d) shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Employees taxable year following the taxable year in which Employee incurred the expenses. The amounts provided under this Section 4(d) during any taxable year of Employees will not affect such amounts provided in any other taxable year of Employees, and Employees right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.
(e) Paid Time Off; Vacation. Employee shall be entitled to such periods of paid time off (PTO) each year as provided under the Companys PTO policy and as otherwise provided for senior executive officers; provided that Employee shall be entitled to at least three (3) weeks paid vacation per year.
(f) Equity Plans. Employee shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. Except as otherwise provided in this Agreement, Employees participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan.
(g) Acceleration of Vesting of Stock Awards.
(i) The vesting and/or exercisability of one hundred percent (100%) of Employees outstanding Stock Awards shall be automatically accelerated on the date of a Change of Control.
(ii) Subject to Section 5(c), if Employees employment is terminated by the Company without Cause or by Employee for Good Reason, the vesting and/or exercisability of each of Employees outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Employee remained continuously employed by the Company during such period.
(iii) The foregoing provisions are hereby deemed to be a part of each Stock Award and to supersede any less favorable provision in any agreement or plan regarding such Stock Award.
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5. Termination of Employment Period and Severance. Employee shall be entitled to receive benefits upon termination of the Employment Period only as set forth in this Section 5.
(a) Termination Without Cause or For Good Reason. If Employees employment is terminated by the Company without Cause or by Employee for Good Reason, Employee shall be entitled to receive, in lieu of any severance benefits to which Employee may otherwise be entitled under any severance plan or program of the Company, the benefits provided below:
(i) the Company shall pay to Employee his or her fully earned but unpaid base salary, when due, through the date of termination at the rate then in effect, plus all other amounts to which Employee is entitled under any compensation plan or practice of the Company at the time of termination;
(ii) subject to Sections 5(c), 5(g) and 5(h) and Employees continuing compliance with Section 6, Employee shall be entitled to receive Employees monthly base salary as in effect immediately prior to the date of termination for the twelve (12) month period following the date of termination, payable in a lump sum no later than sixty (60) days following the date of Employees termination of employment; and
(iii) subject to Sections 5(c), 5(g) and 5(h) and Employees continuing compliance with Section 6, for the period beginning on the date of termination and ending on the date which is twelve (12) full months following the date of termination (or, if earlier, the date on which the applicable continuation period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) expires), the Company shall pay for and provide to Employee and his or her eligible dependents who were covered under the Companys health insurance plans immediately prior to the date of termination healthcare insurance benefits substantially similar to those provided to Employee and his or her eligible dependents immediately prior to the date of termination, including, if necessary, paying the costs associated with continuation coverage pursuant to COBRA.
(b) Termination for Cause, Voluntary Resignation Without Good Reason, Death or Permanent Disability. If Employees employment is terminated by the Company for Cause, by Employee without Good Reason or as a result of Employees death or Permanent Disability, the Company shall not have any other or further obligations to Employee (or his or her estate) under this Agreement (including any financial obligations) except that Employee (or his or her estate) shall be entitled to receive (i) Employees fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Employee is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by COBRA or applicable law. In addition, if Employees employment is terminated by the Company for Cause, by Employee without Good Reason or as a result of Employees death or Permanent Disability, all vesting of Employees unvested Stock Awards previously granted to him or her by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination. The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.
(c) Release. As a condition to Employees receipt of any post-termination benefits pursuant to Sections 4(g)(ii) or 5(a) above, on or prior to the sixtieth (60th) day following the date of Employees termination of employment, Employee shall have executed and delivered a Release (the Release) in a form reasonably acceptable to the Company and any applicable revocation period applicable to such Release shall have expired. Such Release shall specifically relate to all of Employees rights and claims in existence at the time of such execution, including any claims related to Employees employment by the Company and his or
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her termination of employment, and shall exclude any continuing obligations the Company may have to Employee following the date of termination under this Agreement or any other agreement providing for obligations to survive Employees termination of employment.
(d) Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Employees rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Employees employment shall cease upon such termination. In the event of a termination of Employees employment with the Company, Employees sole remedy shall be to receive the payments and benefits described in this Section 5. In addition, Employee acknowledges and agrees that he or she is not entitled to any reimbursement by the Company for any taxes payable by Employee as a result of the payments and benefits received by Employee pursuant to this Section 5, including, without limitation, any excise tax imposed by Section 4999 of the Code.
(e) No Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by Employee as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Employee to the Company may be offset by the Company against amounts payable to Employee under this Section 5; provided, further, that, as provided in Section 5(a), Employees right to continued healthcare and life insurance benefits following his or her termination of employment will terminate on the date on which the applicable continuation period under COBRA expires.
(f) Return of the Companys Property. If Employees employment is terminated for any reason, the Company shall have the right, at its option, to require Employee to vacate his or her offices prior to or on the effective date of termination and to cease all activities on the Companys behalf. Upon the termination of his or her employment in any manner, as a condition to the Employees receipt of any post-termination benefits described in this Agreement, Employee shall immediately surrender to the Company all lists, books and records of, or in connection with, the Companys business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Employee shall deliver to the Company a signed statement certifying compliance with this Section 5(f) prior to the receipt of any post-termination benefits described in this Agreement.
(g) Short-Term Deferral. This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payment payable under Section 5(a)(ii) shall be paid no later than the later of: (i) the fifteenth (15th) day of the third month following Executives first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15th) day of the third month following the first taxable year of the Company in which such severance benefit is no longer subject to a substantial risk of forfeiture, as determined in accordance with Section 409A of the Code and any Treasury Regulations and other guidance issued thereunder.
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(h) Payment Delay. Notwithstanding anything herein to the contrary, to the extent any payments to Employee pursuant to Section 5(a)(ii) are treated as non-qualified deferred compensation subject to Section 409A of the Code, then (i) no amount shall be payable pursuant to such section unless Employees termination of employment constitutes a separation from service with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto) (a Separation from Service), and (ii) if Employee, at the time of his or her Separation from Service, is determined by the Company to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code and the Company determines that delayed commencement of any portion of the termination benefits payable to Employee pursuant to this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code (any such delayed commencement, a Payment Delay), then such portion of Employees termination benefits described in Section 5(a)(ii) shall not be provided to Employee prior to the earlier of (A) the expiration of the six-month period measured from the date of Employees Separation from Service, (B) the date of Employees death or (C) such earlier date as is permitted under Section 409A. Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i) deferral period, all payments deferred pursuant to a Payment Delay shall be paid in a lump sum to Employee within thirty (30) days following such expiration, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. The determination of whether Employee is a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his or her Separation from Service shall made by the Company in accordance with the terms of Section 409A of the Code and applicable guidance thereunder (including without limitation Treasury Regulation Section 1.409A-1(i) and any successor provision thereto).
(i) Interpretation. To the extent the payments and benefits under this Agreement are subject to Section 409A of the Code, this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder (and any applicable transition relief under Section 409A of the Code). As provided in Internal Revenue Notice 2007-86, notwithstanding any other provision of this Agreement, with respect to an election or amendment to change a time or form of payment under this Agreement made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment shall apply only with respect to payments that would not otherwise be payable in 2008, and shall not cause payments to be made in 2008 that would not otherwise be payable in 2008.
6. Certain Covenants.
(a) Noncompetition. Except as may otherwise be approved by the Board, during the Employment Period, Employee shall not have any ownership interest (of record or beneficial) in, or perform services as an employee, salesman, consultant, officer or director of, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other business that engages in any county, city or part thereof in the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Companys business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Employee may own, directly or indirectly,
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solely as an investment, securities of any entity if Employee (x) is not a controlling person of, or a member of a group which controls, such entity; or (y) does not, directly or indirectly, own ten percent (10%) or more of any class of securities of any such entity. Subject to the terms of the Proprietary Information and Inventions Agreement referred to in Section 6(b), nothing in this Agreement shall preclude Employee from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with his or her duties to the Company, as determined in good faith by the Board. Employee agrees that he or she will not join any boards, other than community and civic boards (which do not interfere with his or her duties to the Company), without the prior approval of the Board.
(b) Confidential Information. Employee and the Company have entered into the Companys standard proprietary information and inventions agreement (the Proprietary Information and Inventions Agreement). Employee agrees to perform each and every obligation of Employee therein contained.
(c) Solicitation of Employees. Employee shall not during the Employment Period and for the applicable severance period for which Employee receives severance benefits following any termination hereof pursuant to Section 5(a) above (the Restricted Period), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any employee of the Company or any of its affiliates.
(d) Solicitation of Consultants. Employee shall not during the Employment Period and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultants engagement by the Company or any of its affiliates.
(e) Rights and Remedies Upon Breach. If Employee breaches or threatens to commit a breach of any of the provisions of this Section 6 (the Restrictive Covenants), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:
(i) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company;
(ii) Accounting and Indemnification. The right and remedy to require Employee (i) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (ii) to indemnify the Company against any other losses, damages (including special and consequential
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damages), costs and expenses, including actual attorneys fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants; and
(iii) Termination of Severance Payments. In the event Employee breaches any of the provisions of this Section 6, the Company shall be entitled to immediately cease all payments under Section 5(a) above.
(f) Severability of Covenants/Blue Pencilling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Employee hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.
(g) Enforceability in Jurisdictions. The Company and Employee intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Employee that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.
(h) Definitions. For purposes of this Section 6, the term Company means not only Conatus Pharmaceuticals Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Conatus Pharmaceuticals Inc.
7. Insurance; Indemnification. The Company shall have the right to take out life, health, accident, key-man or other insurance covering Employee, in the name of the Company and at the Companys expense in any amount deemed appropriate by the Company. Employee shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies. Employee will be provided with indemnification against third party claims related to his or her work for the Company as required by Delaware law. The Company shall provide Employee with directors and officers liability insurance coverage at least as favorable as that which the Company may maintain from time to time for other executive officers.
8. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to this Agreement, or the breach thereof, including questions regarding the arbitrability of a particular dispute, shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment
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Disputes (the Rules) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Employee and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award; provided, further, that the parties obligations pursuant to the provisos set forth above shall terminate on the tenth (10th) anniversary of the date of Employees termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAAs administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 8 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement, or the breach thereof; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such partys right to compel arbitration. Both Employee and the Company expressly waive their right to a jury trial to the extent permitted by applicable law.
9. Miscellaneous.
(a) Modification; Prior Claims. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, including, without limitation, the Prior Agreement, and may be modified only by a written instrument duly executed by each party.
(b) Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Employee, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
(c) Survival. The covenants, agreements, representations and warranties contained in or made in Sections 4, 5, 6, 8 and 9 of this Agreement shall survive any termination of this Agreement.
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(d) Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.
(e) Waiver. The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such partys rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.
(f) Section Headings. The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.
(g) Notices. All notices, requests and other communications hereunder shall be in writing and shall be delivered by courier or other means of personal service (including by means of a nationally recognized courier service or professional messenger service), or sent by telex or telecopy or mailed first class, postage prepaid, by certified mail, return receipt requested, in all cases, addressed to:
If to the Company or the Board:
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, California 92121
Attention: Secretary
If to Employee:
Steven J. Mento, Ph.D.
16030 Country Day Road
Poway, California 92064
All notices, requests and other communications shall be deemed given on the date of actual receipt or delivery as evidenced by written receipt, acknowledgement or other evidence of actual receipt or delivery to the address. In case of service by telecopy, a copy of such notice shall be personally delivered or sent by registered or certified mail, in the manner set forth above, within three business days thereafter. Any party hereto may from time to time by notice in writing served as set forth above designate a different address or a different or additional person to which all such notices or communications thereafter are to be given.
(h) Severability. All Sections, clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.
(i) Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles
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thereof. Except as provided in Sections 6 and 8, any suit brought hereon shall be brought in the state or federal courts sitting in San Diego, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.
(j) Non-transferability of Interest. None of the rights of Employee to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Employee. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Employee to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.
(k) Gender. Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word person shall include any corporation, firm, partnership or other form of association.
(l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.
(m) Construction. The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.
(n) Withholding and other Deductions. All compensation payable to Employee hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
CONATUS PHARMACEUTICALS INC. | ||
By: | /s/ David F. Hale | |
Name: | David F. Hale | |
Title: | Chairman, Compensation Committee |
/s/ Steven J. Mento, Ph.D. |
Steven J. Mento, Ph.D. |
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Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this Agreement) is entered into by and between Conatus Pharmaceuticals Inc., a Delaware corporation (the Company), and Alfred P. Spada (Employee), and shall be effective as of December 17, 2008 (the Effective Date).
WHEREAS, the Company and Employee are parties to that certain Founders Agreement dated as of July 13, 2005, as amended by that certain First Amendment to Founders Agreement dated as of January 15, 2006 (the Prior Agreement); and
WHEREAS, the Company and Employee desire to replace the Prior Agreement with this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the following meanings:
(a) Board. Board means the Board of Directors of the Company.
(b) Cause. Cause means any of the following:
(i) the commission of an act of fraud, embezzlement or dishonesty by Employee that has a material adverse impact on the Company or any successor or affiliate thereof;
(ii) a conviction of, or plea of guilty or no contest to, a felony by Employee or any crime involving fraud, misappropriation, embezzlement or moral turpitude;
(iii) any unauthorized use or disclosure by Employee of confidential information or trade secrets of the Company or any successor or affiliate thereof that has a material adverse impact on any such entity;
(iv) Employees gross negligence, insubordination or material violation of any duty of loyalty to the Company or any other material misconduct on the part of Employee;
(v) Employees ongoing and repeated failure or refusal to perform or neglect of Employees duties as required by this Agreement, which failure, refusal or neglect continues for fifteen (15) days following Employees receipt of written notice from the Board or the Companys Chief Executive Officer (the CEO) stating with specificity the nature of such failure, refusal or neglect; or
(vi) Employees breach of any material provision of this Agreement; provided, however, that prior to the determination that Cause under this Section 1(b) has occurred, the Company shall (w) provide to Employee in writing, in reasonable detail, the reasons for the determination that such Cause exists, (x) other than with respect to clause (v) above which specifies the applicable period of time for Employee to remedy his or her breach, afford
Employee a reasonable opportunity to remedy any such breach (if such breach is capable of being remedied), (y) provide Employee an opportunity to be heard prior to the final decision to terminate Employees employment hereunder for such Cause and (z) make any decision that such Cause exists in good faith.
The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Employee for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.
(c) Change of Control. Change of Control means and includes each of the following:
(i) a transaction or series of transactions (other than an offering of common stock of the Company to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules thereunder) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (i) or (iii) of this Section 1(c)) whose election by the Board 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 two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of a merger, consolidation, reorganization, or business combination, a sale or other disposition of all or substantially all of the Companys assets, or the acquisition of assets or stock of another entity, in each case, other than a transaction
(A) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least fifty percent (50%) of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
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(B) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph (iii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv) the Companys stockholders approve a liquidation or dissolution of the Company.
For purposes of subsection (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Companys stockholders, and for purposes of subsection (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Companys stockholders.
Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) its sole purpose is to change the state of the Companys incorporation; (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; (iii) it constitutes the Companys initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).
(d) Code. Code means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other guidance issued thereunder.
(e) Good Reason. Employees resignation for Good Reason means Employees resignation following the occurrence of any of the following events or conditions without Employees written consent:
(i) a material diminution in Employees authority, duties or responsibilities;
(ii) a material diminution in Employees base compensation, except in connection with a general reduction in the base compensation of the Companys or any successors or affiliates personnel with similar status and responsibilities;
(iii) a material change in the geographic location at which Employee must perform his or her duties (and the Company and Employee agree that any requirement that Employee be based at any place outside a 50-mile radius of his or her place of employment as of the Effective Date, except for reasonably required travel on the Companys or any successors or affiliates business that is not materially greater than such travel requirements prior to the Effective Date, shall be considered a material change); or
(iv) any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Employee under this Agreement.
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Notwithstanding the foregoing, Good Reason shall only exist if Employee shall have provided the Company with written notice within ninety (90) days of the initial occurrence of any of the foregoing events or conditions, and the Company or any successor or affiliate fails to eliminate the conditions constituting Good Reason within thirty (30) days after receipt of written notice of such event or condition from Employee. Employees termination by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary. Employees resignation from employment with the Company for Good Reason must occur within twelve (12) months following the initial occurrence of one of the foregoing events or conditions.
(f) Permanent Disability. Employees Permanent Disability shall be deemed to have occurred if Employee shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge his or her duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Employees Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves the right to have the Employee examined by a physician chosen by the Company at the Companys expense.
(g) Stock Awards. Stock Awards means all stock options, restricted stock and such other awards granted pursuant to the Companys stock option and equity incentive award plans or agreements and any shares of stock issued upon exercise thereof, and any founders stock issued to Employee in connection with the formation of the Company.
2. Employment Period. During the term of Employees employment hereunder (the Employment Period), Employee shall be considered an employee of the Company. The Company and Employee acknowledge that Employees employment during the Employment Period will be at-will, as defined under applicable law, and that Employees employment with the Company during the Employment Period may be terminated by either party at any time for any or no reason, with or without notice. If Employees employment during the Employment Period terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement.
3. Services to Be Rendered.
(a) Duties and Responsibilities. Employee shall serve as Senior Vice President Research and Development of the Company. In the performance of such duties, Employee shall report directly to the CEO and shall be subject to the direction of the CEO and to such limits upon Employees authority as the CEO may from time to time impose. In the event of the CEOs incapacity or unavailability, Employee shall be subject to the direction of the Board or its designee. Employee hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the Board or the CEO. Employees primary place of work shall be the Companys facility in San Diego, California, or such other location within San Diego County as may be
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designated by the Board or the CEO from time to time. Employee shall also render services at such other places within or outside the United States as the Board or the CEO may direct from time to time. Employee shall be subject to and comply with the policies and procedures generally applicable to employees of the Company to the extent the same are not inconsistent with any term of this Agreement.
(b) Exclusive Services. Employee shall at all times faithfully, industriously and to the best of his or her ability, experience and talent perform to the satisfaction of the Board and the CEO all of the duties that may be assigned to Employee hereunder and shall devote substantially all of his or her productive time and efforts to the performance of such duties.
4. Compensation and Benefits During Employment Period. During the Employment Period, the Company shall pay or provide, as the case may be, to Employee the compensation and other benefits and rights set forth in this Section 4.
(a) Base Salary. The Company shall pay to Employee a base salary of $246,750 per year, payable in accordance with the Companys usual pay practices (and in any event no less frequently than bi-monthly). Employees base salary shall be subject to review annually by and at the sole discretion of the Board or its designee.
(b) Annual Bonus. Employee shall be eligible to earn, for each fiscal year of the Company ending during the Employment Period, an annual cash performance bonus (an Annual Bonus) based on Employees and/or the Companys attainment of objective financial or other operating criteria established by the Board or its designee. Upon full attainment of the aforementioned criteria, as determined by the Board or its designee, the Annual Bonus will be equal to thirty percent (30%) of Employees then-current base salary actually paid for such fiscal year. The Annual Bonus shall be paid to Employee by the Company between January 1st and March 15th of the calendar year following the end of the fiscal year to which such Annual Bonus relates. Employees receipt of an Annual Bonus shall be conditioned on Employees continued employment with the Company on the date such Annual Bonus is paid. The Annual Bonus shall be pro-rated for any partial fiscal year during the Employment Period. As of the Effective Date, the Companys fiscal year ends on December 31. In the event of any change to the Companys fiscal year, the aforementioned financial or other operating criteria established by the Board or its designee for purposes of determining Employees Annual Bonus shall be adjusted in a manner mutually agreeable to the Company and Employee so as not to disadvantage either party.
(c) Benefits. Employee shall be entitled to participate in benefits under the Companys benefit plans and arrangements, including, without limitation, any employee benefit plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein. The Companys failure to continue provide Employee with benefits substantially equivalent (in terms of benefit levels and/or reward opportunities) to those provided to Employee under each material employee benefit plan, program and practice of the Company as in effect immediately prior to the Effective Date, except in connection with a general reduction in the benefits of the Companys or any successors or affiliates personnel with similar status and responsibilities, shall constitute a material breach of this Agreement by the Company.
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(d) Expenses. The Company shall reimburse Employee for reasonable out-of-pocket business expenses incurred in connection with the performance of his or her duties hereunder, subject to (i) such policies as the Company may from time to time establish, (ii) Employee furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures, (iii) Employee receiving advance approval from the CEO in the case of expenses for travel outside of North America, and (iv) Employee receiving advance approval from the CEO in the case of expenses (or a series of related expenses) in excess of $10,000. Any amounts payable under this Section 4(d) shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Employees taxable year following the taxable year in which Employee incurred the expenses. The amounts provided under this Section 4(d) during any taxable year of Employees will not affect such amounts provided in any other taxable year of Employees, and Employees right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.
(e) Paid Time Off; Vacation. Employee shall be entitled to such periods of paid time off (PTO) each year as provided under the Companys PTO policy and as otherwise provided for senior executive officers; provided that Employee shall be entitled to at least three (3) weeks paid vacation per year.
(f) Equity Plans. Employee shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. Except as otherwise provided in this Agreement, Employees participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing document of the particular plan.
(g) Acceleration of Vesting of Stock Awards.
(i) The vesting and/or exercisability of one hundred percent (100%) of Employees outstanding Stock Awards shall be automatically accelerated on the date of a Change of Control.
(ii) Subject to Section 5(c), if Employees employment is terminated by the Company without Cause or by Employee for Good Reason, the vesting and/or exercisability of each of Employees outstanding Stock Awards shall be automatically accelerated on the date of termination as to the number of Stock Awards that would vest over the twelve (12) month period following the date of termination had Employee remained continuously employed by the Company during such period.
(iii) The foregoing provisions are hereby deemed to be a part of each Stock Award and to supersede any less favorable provision in any agreement or plan regarding such Stock Award.
5. Termination of Employment Period and Severance. Employee shall be entitled to receive benefits upon termination of the Employment Period only as set forth in this Section 5.
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(a) Termination Without Cause or For Good Reason. If Employees employment is terminated by the Company without Cause or by Employee for Good Reason, Employee shall be entitled to receive, in lieu of any severance benefits to which Employee may otherwise be entitled under any severance plan or program of the Company, the benefits provided below:
(i) the Company shall pay to Employee his or her fully earned but unpaid base salary, when due, through the date of termination at the rate then in effect, plus all other amounts to which Employee is entitled under any compensation plan or practice of the Company at the time of termination;
(ii) subject to Sections 5(c), 5(g) and 5(h) and Employees continuing compliance with Section 6, Employee shall be entitled to receive Employees monthly base salary as in effect immediately prior to the date of termination for the twelve (12) month period following the date of termination, payable in a lump sum no later than sixty (60) days following the date of Employees termination of employment; and
(iii) subject to Sections 5(c), 5(g) and 5(h) and Employees continuing compliance with Section 6, for the period beginning on the date of termination and ending on the date which is twelve (12) full months following the date of termination (or, if earlier, the date on which the applicable continuation period under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) expires), the Company shall pay for and provide to Employee and his or her eligible dependents who were covered under the Companys health insurance plans immediately prior to the date of termination healthcare insurance benefits substantially similar to those provided to Employee and his or her eligible dependents immediately prior to the date of termination, including, if necessary, paying the costs associated with continuation coverage pursuant to COBRA.
(b) Termination for Cause, Voluntary Resignation Without Good Reason, Death or Permanent Disability. If Employees employment is terminated by the Company for Cause, by Employee without Good Reason or as a result of Employees death or Permanent Disability, the Company shall not have any other or further obligations to Employee (or his or her estate) under this Agreement (including any financial obligations) except that Employee (or his or her estate) shall be entitled to receive (i) Employees fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Employee is entitled under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by COBRA or applicable law. In addition, if Employees employment is terminated by the Company for Cause, by Employee without Good Reason or as a result of Employees death or Permanent Disability, all vesting of Employees unvested Stock Awards previously granted to him or her by the Company shall cease and none of such unvested Stock Awards shall be exercisable following the date of such termination. The foregoing shall be in addition to, and not in lieu of, any and all other rights and remedies which may be available to the Company under the circumstances, whether at law or in equity.
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(c) Release. As a condition to Employees receipt of any post-termination benefits pursuant to Sections 4(g)(ii) or 5(a) above, on or prior to the sixtieth (60th) day following the date of Employees termination of employment, Employee shall have executed and delivered a Release (the Release) in a form reasonably acceptable to the Company and any applicable revocation period applicable to such Release shall have expired. Such Release shall specifically relate to all of Employees rights and claims in existence at the time of such execution, including any claims related to Employees employment by the Company and his or her termination of employment, and shall exclude any continuing obligations the Company may have to Employee following the date of termination under this Agreement or any other agreement providing for obligations to survive Employees termination of employment.
(d) Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Employees rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Employees employment shall cease upon such termination. In the event of a termination of Employees employment with the Company, Employees sole remedy shall be to receive the payments and benefits described in this Section 5. In addition, Employee acknowledges and agrees that he or she is not entitled to any reimbursement by the Company for any taxes payable by Employee as a result of the payments and benefits received by Employee pursuant to this Section 5, including, without limitation, any excise tax imposed by Section 4999 of the Code.
(e) No Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by Employee as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Employee to the Company may be offset by the Company against amounts payable to Employee under this Section 5; provided, further, that, as provided in Section 5(a), Employees right to continued healthcare and life insurance benefits following his or her termination of employment will terminate on the date on which the applicable continuation period under COBRA expires.
(f) Return of the Companys Property. If Employees employment is terminated for any reason, the Company shall have the right, at its option, to require Employee to vacate his or her offices prior to or on the effective date of termination and to cease all activities on the Companys behalf. Upon the termination of his or her employment in any manner, as a condition to the Employees receipt of any post-termination benefits described in this Agreement, Employee shall immediately surrender to the Company all lists, books and records of, or in connection with, the Companys business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Employee shall deliver to the Company a signed statement certifying compliance with this Section 5(f) prior to the receipt of any post-termination benefits described in this Agreement.
(g) Short-Term Deferral. This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the severance payment payable under Section 5(a)(ii) shall be paid no later than the later of: (i) the fifteenth
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(15th) day of the third month following Executives first taxable year in which such severance benefit is no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15th) day of the third month following the first taxable year of the Company in which such severance benefit is no longer subject to a substantial risk of forfeiture, as determined in accordance with Section 409A of the Code and any Treasury Regulations and other guidance issued thereunder.
(h) Payment Delay. Notwithstanding anything herein to the contrary, to the extent any payments to Employee pursuant to Section 5(a)(ii) are treated as non-qualified deferred compensation subject to Section 409A of the Code, then (i) no amount shall be payable pursuant to such section unless Employees termination of employment constitutes a separation from service with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto) (a Separation from Service), and (ii) if Employee, at the time of his or her Separation from Service, is determined by the Company to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code and the Company determines that delayed commencement of any portion of the termination benefits payable to Employee pursuant to this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code (any such delayed commencement, a Payment Delay), then such portion of Employees termination benefits described in Section 5(a)(ii) shall not be provided to Employee prior to the earlier of (A) the expiration of the six-month period measured from the date of Employees Separation from Service, (B) the date of Employees death or (C) such earlier date as is permitted under Section 409A. Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i) deferral period, all payments deferred pursuant to a Payment Delay shall be paid in a lump sum to Employee within thirty (30) days following such expiration, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. The determination of whether Employee is a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his or her Separation from Service shall made by the Company in accordance with the terms of Section 409A of the Code and applicable guidance thereunder (including without limitation Treasury Regulation Section 1.409A-1(i) and any successor provision thereto).
(i) Interpretation. To the extent the payments and benefits under this Agreement are subject to Section 409A of the Code, this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder (and any applicable transition relief under Section 409A of the Code). As provided in Internal Revenue Notice 2007-86, notwithstanding any other provision of this Agreement, with respect to an election or amendment to change a time or form of payment under this Agreement made on or after January 1, 2008 and on or before December 31, 2008, the election or amendment shall apply only with respect to payments that would not otherwise be payable in 2008, and shall not cause payments to be made in 2008 that would not otherwise be payable in 2008.
6. Certain Covenants.
(a) Noncompetition. Except as may otherwise be approved by the Board, during the Employment Period, Employee shall not have any ownership interest (of record or beneficial) in, or perform services as an employee, salesman, consultant, officer or director of, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other
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business that engages in any county, city or part thereof in the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Companys business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Employee may own, directly or indirectly, solely as an investment, securities of any entity if Employee (x) is not a controlling person of, or a member of a group which controls, such entity; or (y) does not, directly or indirectly, own ten percent (10%) or more of any class of securities of any such entity. Subject to the terms of the Proprietary Information and Inventions Agreement referred to in Section 6(b), nothing in this Agreement shall preclude Employee from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with his or her duties to the Company, as determined in good faith by the CEO. Employee agrees that he or she will not join any boards, other than community and civic boards (which do not interfere with his or her duties to the Company), without the prior approval of the CEO.
(b) Confidential Information. Employee and the Company have entered into the Companys standard proprietary information and inventions agreement (the Proprietary Information and Inventions Agreement). Employee agrees to perform each and every obligation of Employee therein contained.
(c) Solicitation of Employees. Employee shall not during the Employment Period and for the applicable severance period for which Employee receives severance benefits following any termination hereof pursuant to Section 5(a) above (the Restricted Period), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any employee of the Company or any of its affiliates.
(d) Solicitation of Consultants. Employee shall not during the Employment Period and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultants engagement by the Company or any of its affiliates.
(e) Rights and Remedies Upon Breach. If Employee breaches or threatens to commit a breach of any of the provisions of this Section 6 (the Restrictive Covenants), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:
(i) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company;
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(ii) Accounting and Indemnification. The right and remedy to require Employee (i) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (ii) to indemnify the Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants; and
(iii) Termination of Severance Payments. In the event Employee breaches any of the provisions of this Section 6, the Company shall be entitled to immediately cease all payments under Section 5(a) above.
(f) Severability of Covenants/Blue Pencilling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Employee hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.
(g) Enforceability in Jurisdictions. The Company and Employee intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Employee that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.
(h) Definitions. For purposes of this Section 6, the term Company means not only Conatus Pharmaceuticals Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Conatus Pharmaceuticals Inc.
7. Insurance; Indemnification. The Company shall have the right to take out life, health, accident, key-man or other insurance covering Employee, in the name of the Company and at the Companys expense in any amount deemed appropriate by the Company. Employee shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies. Employee will be provided with indemnification against third party claims related to his or her work for the Company as required by Delaware law. The Company shall provide Employee with directors and officers liability insurance coverage at least as favorable as that which the Company may maintain from time to time for other executive officers.
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8. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to this Agreement, or the breach thereof, including questions regarding the arbitrability of a particular dispute, shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the Rules) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Employee and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award; provided, further, that the parties obligations pursuant to the provisos set forth above shall terminate on the tenth (10th) anniversary of the date of Employees termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAAs administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 8 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement, or the breach thereof; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such partys right to compel arbitration. Both Employee and the Company expressly waive their right to a jury trial to the extent permitted by applicable law.
9. Miscellaneous.
(a) Modification; Prior Claims. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, including, without limitation, the Prior Agreement, and may be modified only by a written instrument duly executed by each party.
(b) Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Employee, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
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(c) Survival. The covenants, agreements, representations and warranties contained in or made in Sections 4, 5, 6, 8 and 9 of this Agreement shall survive any termination of this Agreement.
(d) Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.
(e) Waiver. The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such partys rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.
(f) Section Headings. The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.
(g) Notices. All notices, requests and other communications hereunder shall be in writing and shall be delivered by courier or other means of personal service (including by means of a nationally recognized courier service or professional messenger service), or sent by telex or telecopy or mailed first class, postage prepaid, by certified mail, return receipt requested, in all cases, addressed to:
If to the Company or the Board:
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, California 92121
Attention: Secretary
If to Employee:
Alfred P. Spada, Ph.D.
2891 Camino Serbal
Carlsbad, California 92009
All notices, requests and other communications shall be deemed given on the date of actual receipt or delivery as evidenced by written receipt, acknowledgement or other evidence of actual receipt or delivery to the address. In case of service by telecopy, a copy of such notice shall be personally delivered or sent by registered or certified mail, in the manner set forth above, within three business days thereafter. Any party hereto may from time to time by notice in writing served as set forth above designate a different address or a different or additional person to which all such notices or communications thereafter are to be given.
(h) Severability. All Sections, clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.
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(i) Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof. Except as provided in Sections 6 and 8, any suit brought hereon shall be brought in the state or federal courts sitting in San Diego, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.
(j) Non-transferability of Interest. None of the rights of Employee to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Employee. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Employee to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.
(k) Gender. Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word person shall include any corporation, firm, partnership or other form of association.
(l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.
(m) Construction. The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.
(n) Withholding and other Deductions. All compensation payable to Employee hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
CONATUS PHARMACEUTICALS INC. | ||
By: | /s/ Steven J. Mento | |
Name: | Steven J. Mento | |
Title: | Pres & CEO |
/s/ Alfred P. Spada, Ph.D. |
Alfred P. Spada, Ph.D. |
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Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this Agreement) is entered into by and between Conatus Pharmaceuticals Inc., a Delaware corporation (the Company), and Gary Burgess, M.D. (Employee), and shall be effective as of November 1, 2011 (the Effective Date).
WHEREAS, the Company desires to employ Employee and Employee desires to obtain employment with the Company, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the following meanings:
(a) Board. Board means the Board of Directors of the Company.
(b) Cause. Cause means any of the following:
(i) the commission of an act of fraud, embezzlement or dishonesty by Employee that has a material adverse impact on the Company or any successor or affiliate thereof;
(ii) a conviction of, or plea of guilty or no contest to, a felony by Employee or any crime involving fraud, misappropriation, embezzlement or moral turpitude;
(iii) any unauthorized use or disclosure by Employee of confidential information or trade secrets of the Company or any successor or affiliate thereof that has a material adverse impact on any such entity;
(iv) Employees gross negligence, Gross Misconduct, insubordination or material violation of any duty of loyalty to the Company or any other material misconduct on the part of Employee;
(v) Employees ongoing and repeated failure or refusal to perform or neglect of Employees duties as required by this Agreement, which failure, refusal or neglect continues for fifteen (15) days following Employees receipt of written notice from the Board or the Companys Chief Executive Officer (the CEO) stating with specificity the nature of such failure, refusal or neglect; or
(vi) Employees breach of any material provision of this Agreement;
provided, however, that prior to the determination that Cause under this Section 1(b) has occurred, the Company shall (w) provide to Employee in writing, in reasonable detail, the reasons for the determination that such Cause exists, (x) other than with respect to clause (v) above which specifies the applicable period of time for Employee to remedy his breach, afford Employee a reasonable opportunity to remedy any such breach (if such breach is capable of being remedied),
(y) provide Employee an opportunity to be heard prior to the final decision to terminate Employees employment hereunder for such Cause and (z) make any decision that such Cause exists in good faith.
The foregoing definition shall not in any way preclude or restrict the right of the Company or any successor or affiliate thereof to discharge or dismiss Employee for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of this Agreement, to constitute grounds for termination for Cause.
(c) Change of Control. Change of Control means and includes each of the following:
(i) a transaction or series of transactions (other than an offering of common stock of the Company to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules thereunder) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (i) or (iii) of this Section 1(c)) whose election by the Board 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 two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of a merger, consolidation, reorganization, or business combination, a sale or other disposition of all or substantially all of the Companys assets, or the acquisition of assets or stock of another entity, in each case, other than a transaction
(A) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least fifty percent (50%) of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
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(B) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph (iii) as beneficially owning fifty percent (50%) or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
(iv) the Companys stockholders approve a liquidation or dissolution of the Company.
For purposes of subsection (i) above, the calculation of voting power shall be made as if the date of the acquisition were a record date for a vote of the Companys stockholders, and for purposes of subsection (iii) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Companys stockholders.
Notwithstanding the foregoing, a transaction shall not constitute a Change of Control if: (i) its sole purpose is to change the state of the Companys incorporation; (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; (iii) it constitutes the Companys initial public offering of its securities; or (iv) it is a transaction effected primarily for the purpose of financing the Company with cash (as determined by the Board in its discretion and without regard to whether such transaction is effectuated by a merger, equity financing or otherwise).
(d) Code. Code means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations and other guidance issued thereunder.
(e) Good Reason. Employees resignation for Good Reason means Employees resignation following the occurrence of any of the following events or conditions without Employees written consent:
(i) a material diminution in Employees authority, duties or responsibilities;
(ii) a material diminution in Employees base compensation, except in connection with a general reduction in the base compensation of the Companys or any successors or affiliates personnel with similar status and responsibilities; provided that the expiration of the benefits provided to Employee pursuant to Sections 4(d), (e) and (f) below in the event of Employees relocation to the United States shall not constitute Good Reason; or
(iii) any other action or inaction that constitutes a material breach by the Company or any successor or affiliate of its obligations to Employee under this Agreement.
Notwithstanding the foregoing, Good Reason shall only exist if Employee shall have provided the Company with written notice within ninety (90) days of the initial occurrence of any of the foregoing events or conditions, and the Company or any successor or affiliate fails to eliminate the conditions constituting Good Reason within thirty (30) days after receipt of
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written notice of such event or condition from Employee. Employees termination by reason of resignation from employment with the Company for Good Reason shall be treated as involuntary. Employees resignation from employment with the Company for Good Reason must occur within three (3) months following the initial occurrence of one of the foregoing events or conditions.
(f) Gross Misconduct. Gross Misconduct includes but is not limited to:
(i) Any act which constitutes unlawful discrimination or harassment, whether on the grounds of sex, sexual orientation, race, ethnic origin, nationality, disability, age, religion or beliefs;
(ii) Knowingly providing false information or documentation to the Company;
(iii) Being under the influence of, or consuming, illegal drugs or any controlled substances during work hours or while involved in Company-related activities or events;
(iv) Violent, abusive, intimidating or offensive behavior (whether physical or verbal);
(v) Unauthorized access to or inappropriate use of the Companys computer, e-mail and Internet systems or use of unapproved software;
(vi) Interference with safety equipment; or
(vii) Intentional or reckless disregard for health and safety rules or procedures.
(g) Permanent Disability. Employees Permanent Disability shall be deemed to have occurred if Employee shall become physically or mentally incapacitated or disabled or otherwise unable fully to discharge his duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty (120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Employees Permanent Disability shall be determined by the Company on the advice of a physician chosen by the Company and the Company reserves the right to have the Employee examined by a physician chosen by the Company at the Companys expense.
2. Employment Period.
(a) Notice. During the term of Employees employment hereunder (the Employment Period), Employee shall be considered an employee of the Company. The Employees employment with the Company during the Employment Period may be terminated at any time by either party giving the other no less than thirty (30) days prior written notice (or such longer period of notice as is required by law). If Employees employment during the Employment Period terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement.
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(b) Payment in Lieu of Notice. The Company reserves the right in its absolute discretion to terminate Employees employment immediately either instead of or at any time after notice of termination is given by either party and to make a payment in lieu of notice. For this purpose, pay in lieu of notice will be a sum equal to Employees base salary only that Employee would have received during the period of notice outstanding on the termination of Employees employment. For the avoidance of doubt, the Companys right to make a payment in lieu of notice does not give Employee a right to receive such a payment in lieu of notice
(c) Garden Leave. The Company may, at its absolute discretion, require Employee not to attend at work and/or not to undertake all or any of his duties hereunder during any period of notice (whether given by the Company or Employee), provided always that the Company shall continue to pay Employees salary and contractual benefits. For the avoidance of doubt, there is no obligation on the Company to provide Employee with any work during any period of notice and Employee will not be entitled to work his own account or on account of any other person, firm or company during that period.
(d) Termination for Cause. For the avoidance of doubt, at any time during the Employment Period, the Company may terminate Employees employment for Cause with immediate effect and without payment in lieu of notice (or any other compensation).
3. Services to Be Rendered.
(a) Duties and Responsibilities. Employee shall serve as Senior Vice President, Clinical Development and Chief Medical Officer of the Company. In the performance of such duties, Employee shall report directly to the CEO and shall be subject to the direction of the CEO and to such limits upon Employees authority as the CEO may from time to time impose. In the event of the CEOs incapacity or unavailability, Employee shall be subject to the direction of the Board or its designee. Employee hereby consents to serve as an officer and/or director of the Company or any subsidiary or affiliate thereof without any additional salary or compensation, if so requested by the Board or the CEO. Employee shall be employed by the Company on a full time basis. Employee shall be permitted to work from his home in the United Kingdom; provided, however, that Employee shall spend at least one week per month working from the Companys corporate headquarters in San Diego, California, or such other location within San Diego County as may be designated by the Board or the CEO from time to time, during the first year following the Effective Date. Employee shall also render services at such other places as the Board or the CEO may direct from time to time. Employee shall be subject to and comply with the policies and procedures generally applicable to employees of the Company to the extent the same are not inconsistent with any term of this Agreement.
(b) Exclusive Services. Employee shall at all times faithfully, industriously and to the best of his ability, experience and talent perform to the satisfaction of the Board and the CEO all of the duties that may be assigned to Employee hereunder and shall devote substantially all of his productive time and efforts to the performance of such duties. The Companys basic work hours are forty (40) hours per week. From time to time, Employee may
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be required to work additional hours, either as requested by the Company or when the proper performance of Employees work so requires. Such work shall not be entitled to extra remuneration for any additional hours worked in excess of basic weekly hours. Employee acknowledges and agrees that such additional obligation has already been factored in by the Company when determining compensation, and is reflected in Employees salary. In no case shall Employee be requested or directed to perform any act that is in violation of applicable law; any such request or direction shall constitute a material breach of this Agreement by the Company.
(c) Working Time Regulations. Employee acknowledges and agrees that Employees working time, including overtime (whether paid or not), in any period may exceed forty-eight (48) hours in any seven (7) day period, and that the limit specified in Regulation 4(1) of the Working Time Regulations 1998 shall not apply to employment by the Company (the Waiver). However, if Employee chooses to withdraw such Waiver, Employee shall give the Company prior written notice of not less than twelve (12) weeks.
(d) No Collective Agreements. There are no collective agreements which affect the terms and conditions of Employees employment.
4. Compensation and Benefits During Employment Period. During the Employment Period, the Company shall pay or provide, as the case may be, to Employee the compensation and other benefits and rights set forth in this Section 4.
(a) Base Salary. The Company shall pay to Employee a base salary of USD $280,000 per year, payable in accordance with the Companys usual pay practices (and in any event no less frequently than monthly). Employees base salary shall be subject to review annually by and at the sole discretion of the Board or its designee.
(b) Annual Bonus. Employee shall be eligible to earn, for each fiscal year of the Company ending during the Employment Period, an annual cash performance bonus (an Annual Bonus) based on Employees and/or the Companys attainment of objective financial or other operating criteria established by the Board or its designee. Upon full attainment of the aforementioned criteria, as determined by the Board or its designee, the Annual Bonus will be equal to thirty percent (30%) of Employees then-current base salary actually paid for such fiscal year. The amount of bonus (if any) to be paid to Employee upon partial attainment of the criteria shall be determined by the Board in its sole discretion. The Annual Bonus shall be paid to Employee by the Company between January 1st and March 15th of the calendar year following the end of the fiscal year to which such Annual Bonus relates. Employees receipt of an Annual Bonus shall be conditioned on Employees continued employment with the Company on the date such Annual Bonus is paid. The Annual Bonus shall be pro-rated for any partial fiscal year during the Employment Period. As of the Effective Date, the Companys fiscal year ends on December 31. In the event of any change to the Companys fiscal year, the aforementioned financial or other operating criteria established by the Board or its designee for purposes of determining Employees Annual Bonus shall be adjusted in a manner mutually agreeable to the Company and Employee so as not to disadvantage either party.
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(c) Benefits. To the extent that the Company maintains any Company-paid benefit schemes in the United Kingdom and Employee is eligible for participation, Employee may elect to participate in Company-paid benefit schemes (each a Scheme) which Company shall operate from time to time, including:
(i) medical expenses insurance;
(ii) pension fund; and
(iii) life insurance.
Details of such benefits provided by Company will be provided to Employee separately. Participation and entitlement to benefits under any of the Schemes is subject to:
(w) the terms of the relevant Scheme as amended from time to time;
(x) the rules or policies as amended from time to time of the relevant Scheme provider;
(y) acceptance by the relevant Scheme provider; and
(z) satisfaction of the normal underwriting requirements of the relevant Scheme provider and the premium being at a rate which the Company considers reasonable.
The Company shall only be obliged to make any payment under any Scheme where it has received payment from the relevant Scheme provider for that purpose. If a Scheme provider refuses to provide any benefit to Employee, whether based on its own interpretation of the terms and/or rules of the relevant Scheme or otherwise, the Company shall not be liable to provide Employee with any replacement benefit whatsoever or pay any compensation in lieu of such benefit. The Company, in its absolute discretion, reserves the right to discontinue, vary or amend any of the Schemes (including the provider and/or level of cover provided under any Scheme) at any time on reasonable notice to Employee. Any other benefit provided to Employee shall, unless otherwise agreed in writing, be at the absolute discretion of the Company who may, at any time, withdraw or vary the terms of any such benefit as it sees fit. A contracting out certificate is not in force in respect of Employees employment for the purpose of the Pension Schemes Act 1993.
As of the Effective Date, the Company does not maintain any of the foregoing Schemes. As of the Effective Date, and for so long as the Company does not maintain any such Schemes and Employee resides in the United Kingdom, the Company shall pay to Employee USD $3,150 per month to be used by Employee to purchase individually-obtained benefits, payable in accordance with the Companys usual pay practices (and in any event no less frequently than monthly).
7
(d) Holidays. In addition to the eight (8) bank and public holidays (January through December) generally observed in the United Kingdom, Employee is also entitled to (i) two (2) additional floating holidays each calendar year, which holidays shall be selected by Employee, and (ii) twenty-five (25) business days paid holiday in each complete calendar year. The bank holidays include: Christmas Day, Boxing Day, New Years Day, Good Friday, Easter Monday, May Day, Spring Bank Holiday and August Bank Holiday. As of the Effective Date and until Employees termination of employment, Employee will be treated as having accrued holiday on a pro rata basis for each complete month of service in such calendar year, calculated by reference to the Effective Date or last date at work (as applicable), including holiday entitlement for such year. If Employee has exceeded the allowed number of days of accrued holidays, all days over such allowed number shall be deducted from any amount due to Employee. If Employee has accrued holidays, at its sole discretion, the Company may either require Employee to take Employees holidays during the notice period or pay Employee for the accrued holidays. Employee must obtain Companys prior written approval and submit the required forms for any holiday prior to booking such holiday dates. Annual accrued holidays not taken in-year may be carried forward, up to a limit of thirty-eight (38) days.
(e) Illness; Absence. The CEO must be informed as soon as practicable (preferably via telephone) on the first day of Employees absence for any reason.
Employee must keep the Company informed, including anticipated date of return to work. A self-certificate will be accepted by Company for absences of up to seven (7) business days. For periods of illness of seven (7) consecutive days or more, including weekends, Employee will be required to obtain a certificate from Employees physician and promptly provide such certificate to the Company. The Company will honor its obligations to pay Statutory Sick Pay (SSP). The Company may offer enhanced sick pay on top of Employees SSP entitlement. In such cases the payment of Company sick pay is entirely at the discretion of the Company and will be made, inclusive of any SSP paid for the same period of absence. Any time Employees health is a cause for concern, the Company reserves the right, at its sole discretion and at its expense, to require Employee to undergo a medical examination by a physician or consultant of Companys choice. For the avoidance of doubt, the Company reserves the right, at its sole discretion, to terminate Employees employment at any time, notwithstanding that Employee may be in receipt of Company sick pay or be entitled to or receiving benefits pursuant to any permanent health insurance scheme operated by the Company from time to time.
(f) Expenses. The Company shall reimburse Employee for reasonable out-of-pocket business expenses incurred in connection with the performance of his duties hereunder, including, without limitation, hotel or temporary housing, air and ground transportation, meals and other travel-related expenses incurred by Employee in connection with visits to the Companys corporate headquarters, subject to (i) such policies as the Company may from time to time establish, (ii) Employee furnishing the Company with evidence in the form of receipts satisfactory to the Company substantiating the claimed expenditures, (iii) Employee receiving advance approval from the CEO in the case of expenses for travel between the United Kingdom and North America, and (iv) Employee receiving advance approval from the CEO in the case of expenses (or a series of related expenses) in excess of USD $2,500. Any amounts payable under this Section 4(d) shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Employees taxable year following the taxable year in which Employee incurred the expenses. The amounts provided under this
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Section 4(d) during any taxable year of Employees will not affect such amounts provided in any other taxable year of Employees, and Employees right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.
5. Termination of Employment Period and Severance. Employee shall be entitled to receive benefits upon termination of the Employment Period only as set forth in this Section 5.
(a) Termination Without Cause or For Good Reason. If Employees employment is terminated by the Company without Cause or by Employee for Good Reason, Employee shall be entitled to receive, in lieu of any severance benefits to which Employee may otherwise be entitled under any severance plan or program of the Company, the benefits provided below:
(i) the Company shall pay to Employee his fully earned but unpaid base salary, when due, through the date of termination at the rate then in effect, plus all other amounts to which Employee is entitled in respect of the period to the date of termination under any compensation plan or practice of the Company at the time of termination;
(ii) subject to Sections 5(c), 5(g), 5(h), 5(i) and 5(j) and Employees continuing compliance with Section 6, Employee shall be entitled to receive Employees monthly base salary as in effect immediately prior to the date of termination for the Severance Period (as defined below), payable in a lump sum no later than sixty (60) days following the date of Employees termination of employment. For purposes of this Section 5(a), Severance Period shall mean (A) six (6) months, plus one (1) month for each full month of Employees service to the Company as an employee, up to a maximum of twelve (12) months, and (B) upon and following the occurrence of a Change in Control, twelve (12) months; and
(iii) subject to Sections 5(c), 5(g), 5(h), 5(i) and 5(j) and Employees continuing compliance with Section 6, for the Severance Period, the Company shall instead pay to Employee an amount equal to the monthly plan premium payment for Employee and his eligible dependents who were covered under the Companys health plans as of the date of Employees termination of employment (calculated by reference to Employees premiums as of the date of termination of employment) as currently taxable compensation in substantially equal monthly installments over the Severance Period.
(b) Termination for Cause, Voluntary Resignation Without Good Reason, Death or Permanent Disability. If Employees employment is terminated by the Company for Cause, by Employee without Good Reason or as a result of Employees death or Permanent Disability, the Company shall not have any other or further obligations to Employee (or his estate) under this Agreement (including any financial obligations) except that Employee (or his estate) shall be entitled to receive (i) Employees fully earned but unpaid base salary, through the date of termination at the rate then in effect, and (ii) all other amounts or benefits to which Employee is entitled in respect of the period to the date of termination of employment under any compensation, retirement or benefit plan or practice of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by applicable law.
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(c) Release. As a condition to Employees receipt of any post-termination benefits pursuant to Section 5(a) above, on or prior to the sixtieth (60th) day following the date of Employees termination of employment, Employee shall have executed and delivered a Release (the Release) in a form reasonably acceptable to the Company and any applicable revocation period applicable to such Release shall have expired. Such Release shall specifically relate to all of Employees rights and claims in existence at the time of such execution, including any claims related to Employees employment by the Company and his termination of employment, and shall exclude any continuing obligations the Company may have to Employee following the date of termination under this Agreement or any other agreement providing for obligations to survive Employees termination of employment.
(d) Exclusive Remedy. Except as otherwise expressly required by law or as specifically provided herein, all of Employees rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing after the termination of Employees employment shall cease upon such termination. In the event of a termination of Employees employment with the Company, Employees sole remedy shall be to receive the payments and benefits described in this Section 5. In addition, Employee acknowledges and agrees that he is not entitled to any reimbursement by the Company for any taxes payable by Employee as a result of the payments and benefits received by Employee pursuant to this Section 5, including, without limitation, any excise tax imposed by Section 4999 of the Code.
(e) No Mitigation. Employee shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by Employee as the result of employment by another employer or self-employment or by retirement benefits; provided, however, that loans, advances or other amounts owed by Employee to the Company may be offset by the Company against amounts payable to Employee under this Section 5.
(f) Return of the Companys Property. If Employees employment is terminated for any reason, the Company shall have the right, at its option, to require Employee to vacate his offices prior to or on the effective date of termination and to cease all activities on the Companys behalf. Upon the termination of his employment in any manner, as a condition to the Employees receipt of any post-termination benefits described in this Agreement, Employee shall immediately surrender to the Company all lists, books and records of, or in connection with, the Companys business, and all other property belonging to the Company, it being distinctly understood that all such lists, books and records, and other documents, are the property of the Company. Employee shall deliver to the Company a signed statement certifying compliance with this Section 5(f) prior to the receipt of any post-termination benefits described in this Agreement.
(g) Offset. The Company shall be entitled at any time during Employees employment, or in any event on termination of employment, to deduct from Employees compensation or expense reimbursements, any monies due from Employee to the Company, and by executing this Agreement, Employee consents to such deductions including for the purposes of Sections 13-27 of the Employment Rights Act 1996.
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(h) Notice Pay Set Off. Any payments due to the Employee in accordance with Section 5(a)(ii) and (iii) shall be reduced by any salary or benefits paid to the Employee during or in respect of any notice period, including any payments made to the Employee during a period of garden leave or as a payment in lieu of notice in accordance with Section 2.
(i) Section 409A. This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, to the maximum extent permitted by applicable law, amounts payable to Executive pursuant to Section 5(a) shall be made in reliance upon Treasury Regulation Section 1.409A-1(b)(9) (with respect to separation pay plans) or Treasury Regulation Section 1.409A-1(b)(4) (with respect to short-term deferrals). To the extent applicable, this Agreement shall be interpreted in accordance with Code Section 409A and Department of Treasury regulations and other interpretive guidance issued thereunder. To the extent the payments and benefits under this Agreement are subject to Section 409A of the Code, this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder (and any applicable transition relief under Section 409A of the Code).
(j) Payment Delay. Notwithstanding anything herein to the contrary, to the extent any payments to Employee pursuant to Section 5(a) are treated as non-qualified deferred compensation subject to Section 409A of the Code, then (i) no amount shall be payable pursuant to such section unless Employees termination of employment constitutes a separation from service with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto) (a Separation from Service), and (ii) if Employee, at the time of his Separation from Service, is determined by the Company to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code and the Company determines that delayed commencement of any portion of the termination benefits payable to Employee pursuant to this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code (any such delayed commencement, a Payment Delay), then such portion of Employees termination benefits described in Section 5(a) shall not be provided to Employee prior to the earlier of (A) the expiration of the six-month period measured from the date of Employees Separation from Service, (B) the date of Employees death or (C) such earlier date as is permitted under Section 409A. Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i) deferral period, all payments deferred pursuant to a Payment Delay shall be paid in a lump sum to Employee within thirty (30) days following such expiration, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. The determination of whether Employee is a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his Separation from Service shall made by the Company in accordance with the terms of Section 409A of the Code and applicable guidance thereunder (including without limitation Treasury Regulation Section 1.409A-1(i) and any successor provision thereto).
6. Certain Covenants.
(a) Noncompetition. Except as may otherwise be approved by the Board, during the Employment Period, Employee shall not have any ownership interest (of record or beneficial) in, or perform services as an employee, salesman, consultant, officer or director of, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other
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business that engages in any county, city or part thereof in the United Kingdom, the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Companys business in such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Employee may own, directly or indirectly, solely as an investment, securities of any entity if Employee (x) is not a controlling person of, or a member of a group which controls, such entity; or (y) does not, directly or indirectly, own ten percent (10%) or more of any class of securities of any such entity. Subject to the terms of the Proprietary Information and Inventions Agreement referred to in Section 6(b), nothing in this Agreement shall preclude Employee from devoting time to personal and family investments or serving on community and civic boards, or participating in industry associations, provided such activities do not interfere with his duties to the Company, as determined in good faith by the CEO. Employee agrees that he will not join any boards, other than community and civic boards (which do not interfere with his duties to the Company), without the prior approval of the CEO. Notwithstanding the foregoing, with the prior written consent of the CEO, Employee may undertake consulting engagements with third parties during the Employment Period on such terms and conditions as may be determined by the CEO.
(b) Confidential Information and Inventions.
(i) Proprietary Information and Inventions Agreement. Employee and the Company have entered into the Companys standard proprietary information and inventions agreement (the Proprietary Information and Inventions Agreement). Employee agrees to perform each and every obligation of Employee therein contained.
(ii) Copyrights. Employee hereby irrevocably and unconditionally waives all rights granted by Chapter IV of Part I of the Copyright, Designs and Patent Act 1988, including but not limited to moral rights, that vest in Employee (whether before, on or after the Effective Date) in connection with Employees authorship of any copyright works in the course of employment with the Company, wherever in the world enforceable, including, without limitation, the right to be identified as the author of any such works and the right not to have any such works subjected to derogatory treatment.
(iii) Patents. Employee and the Company acknowledge the provisions of Sections 39 to 42 of the Patents Act 1977 (Patents Act) relating to ownership of employees inventions and compensation of employees for certain inventions. If Employee makes any inventions relevant or related to the Companys business that do not belong to the Company under the Patents Act, Employee acknowledges and agrees that, if requested by the Company, Employee will assign to the Company Employees rights in relation to such inventions and will deliver to the Company all documents and other materials relating to such inventions.
(c) Solicitation of Employees. Employee shall not during the Employment Period and for the applicable severance period for which Employee receives severance benefits following any termination hereof pursuant to Section 5(a) above (the Restricted Period), directly or indirectly, solicit or encourage to leave the employment of the Company or any of its affiliates, any person who is a senior employee of the Company or any of its affiliates.
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(d) Solicitation of Consultants. Employee shall not during the Employment Period and for the Restricted Period, directly or indirectly, hire, solicit or encourage to cease work with the Company or any of its affiliates any senior consultant then under contract with the Company or any of its affiliates within one year of the termination of such consultants engagement by the Company or any of its affiliates.
(e) Rights and Remedies Upon Breach. If Employee breaches or threatens to commit a breach of any of the provisions of this Section 6 (the Restrictive Covenants), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:
(i) Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, all without the need to post a bond or any other security or to prove any amount of actual damage or that money damages would not provide an adequate remedy, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company;
(ii) Accounting and Indemnification. The right and remedy to require Employee (i) to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee or any associated party deriving such benefits as a result of any such breach of the Restrictive Covenants; and (ii) to indemnify the Company against any other losses, damages (including special and consequential damages), costs and expenses, including actual attorneys fees and court costs, which may be incurred by them and which result from or arise out of any such breach or threatened breach of the Restrictive Covenants; and
(iii) Termination of Severance Payments. In the event Employee breaches any of the provisions of this Section 6, the Company shall be entitled to immediately cease all payments under Section 5(a) above.
(f) Severability of Covenants/Blue Pencilling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.
(g) Enforceability in Jurisdictions. The Company and Employee intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Employee that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.
(h) Definitions. For purposes of this Section 6, the term Company means not only Conatus Pharmaceuticals Inc., but also any company, partnership or entity which, directly or indirectly, controls, is controlled by or is under common control with Conatus Pharmaceuticals Inc.
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7. Grievance and Disciplinary Procedures.
(a) Grievance Procedures. If Employee has any grievance in relation to his employment, Employee should apply in writing to the CEO in the first instance who will arrange for the appeal to be heard by an appropriate person. Application of such procedure is at the Companys discretion and is not a contractual entitlement.
(b) Disciplinary Procedures.
(i) Any disciplinary matter relating to the Employees employment will be handled in accordance with the Companys disciplinary procedures, the details of which may be obtained from the human resources department. The Company reserves the right, at its sole discretion, to suspend Employee temporarily (with base salary at the rate then currently in effect), subject to such other terms that the Company may impose while the Company makes its determination as to allegation(s) that Employee has committed an act of Gross Misconduct.
(ii) The Company reserves the right, at its sole discretion, to amend any disciplinary and/or grievance procedure or policy.
(iii) Employee is expected to maintain high standard of work performance and conduct at all times. If such performance or conduct falls below levels reasonably acceptable to the Company, Employee may be subject to disciplinary action and dismissal absent satisfactory improvements within a defined time period.
(iv) If Employee is dissatisfied with any disciplinary action or decision to dismiss her, Employee should apply in writing to the person who made the decision.
8. Insurance. The Company shall have the right to take out life, health, accident, key-man or other insurance covering Employee, in the name of the Company and at the Companys expense in any amount deemed appropriate by the Company. Employee shall assist the Company in obtaining such insurance, including, without limitation, submitting to any required examinations and providing information and data required by insurance companies.
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9. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to this Agreement, or the breach thereof, including questions regarding the arbitrability of a particular dispute, shall be settled by final and binding arbitration in San Diego, California, before a single neutral arbitrator in accordance with the National Rules for the Resolution of Employment Disputes (the Rules) of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Arbitration may be compelled pursuant to the California Arbitration Act (Code of Civil Procedure §§ 1280 et seq.). If the parties are unable to agree upon an arbitrator, one shall be appointed by the AAA in accordance with its Rules. Each party shall pay the fees of its own attorneys, the expenses of its witnesses and all other expenses connected with presenting its case; however, Employee and the Company agree that, to the extent permitted by law, the arbitrator may, in his or her discretion, award reasonable attorneys fees to the prevailing party; provided, further, that the prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days following any such award; provided, further, that the parties obligations pursuant to the provisos set forth above shall terminate on the tenth (10th) anniversary of the date of Employees termination of employment. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, AAAs administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 9 is intended to be the exclusive method for resolving any and all claims by the parties against each other for payment of damages under this Agreement, or the breach thereof; provided, however, that neither this Agreement nor the submission to arbitration shall limit the parties right to seek provisional relief, including without limitation injunctive relief, in any court of competent jurisdiction pursuant to California Code of Civil Procedure § 1281.8 or any similar statute of an applicable jurisdiction. Seeking any such relief shall not be deemed to be a waiver of such partys right to compel arbitration. Both Employee and the Company expressly waive their right to a jury trial to the extent permitted by applicable law.
10. Miscellaneous.
(a) Modification; Prior Claims. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, including, without limitation, the Prior Agreement, and may be modified only by a written instrument duly executed by each party.
(b) Assignment; Assumption by Successor. The rights of the Company under this Agreement may, without the consent of Employee, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
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(c) Survival. The covenants, agreements, representations and warranties contained in or made in Sections 4, 5, 6, 8, 9 and 10 of this Agreement shall survive any termination of this Agreement.
(d) Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.
(e) Waiver. The failure of either party hereto at any time to enforce performance by the other party of any provision of this Agreement shall in no way affect such partys rights thereafter to enforce the same, nor shall the waiver by either party of any breach of any provision hereof be deemed to be a waiver by such party of any other breach of the same or any other provision hereof.
(f) Section Headings. The headings of the several sections in this Agreement are inserted solely for the convenience of the parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.
(g) Notices. All notices, requests and other communications hereunder shall be in writing and shall be delivered by courier or other means of personal service (including by means of a nationally recognized courier service or professional messenger service), or sent by telex or telecopy or mailed first class, postage prepaid, by certified mail, return receipt requested, in all cases, addressed to:
If to the Company or the Board:
Conatus Pharmaceuticals Inc.
4365 Executive Drive, Suite 200
San Diego, California 92121
Attention: Secretary
If to Employee:
Gary Burgess, M.D.
All notices, requests and other communications shall be deemed given on the date of actual receipt or delivery as evidenced by written receipt, acknowledgement or other evidence of actual receipt or delivery to the address. In case of service by telecopy, a copy of such notice shall be personally delivered or sent by registered or certified mail, in the manner set forth above, within three business days thereafter. Any party hereto may from time to time by notice in writing served as set forth above designate a different address or a different or additional person to which all such notices or communications thereafter are to be given.
(h) Severability. All Sections, clauses and covenants contained in this Agreement are separate and severable, and in the event any of them shall be held to be invalid by any court, this Agreement shall be interpreted as if such invalid Sections, clauses or covenants were not contained herein.
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(i) Governing Law and Venue. This Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof; provided, however, that mandatory provisions of the laws of the United Kingdom applicable to employment contracts shall apply to the extent required. Except as provided in Sections 6 and 9, any suit brought hereon shall be brought in the state or federal courts sitting in San Diego, California, the parties hereto hereby waiving any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it and consents to service of process in any manner authorized by California law.
(j) Non-transferability of Interest. None of the rights of Employee to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Employee. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of Employee to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.
(k) Gender. Where the context so requires, the use of the masculine gender shall include the feminine and/or neuter genders and the singular shall include the plural, and vice versa, and the word person shall include any corporation, firm, partnership or other form of association.
(l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.
(m) Construction. The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.
(n) Withholding and other Deductions. All compensation payable to Employee hereunder shall be subject to such deductions as the Company is from time to time required to make pursuant to law, governmental regulation or order. The Company shall ensure that all amounts deducted from the compensation payable to Employee are submitted to the appropriate governmental authorities as required by applicable law and that the Companys National Insurance contributions arising in respect of the compensation payable to Employee pursuant to this Agreement are forwarded to the appropriate governmental authorities as required by applicable law.
(p) Data Protection. By executing this Agreement, Employee expressly consents to the holding and processing of personal and, where appropriate, sensitive personal data provided to the Company by Employee for all purposes relating to the performance of this Agreement, including, but not limited to: (i) administration and maintenance of personnel records; (ii) payment and review of salary and other remuneration and benefits; (iii) provision and administration of benefits; (iv) appraisals and reviews of performance; (v) maintenance of
17
records of illness and other absence; (vi) determination of Employees fitness for work; (vii) provision of references and information to future employers, and if necessary, governmental and quasi-governmental bodies for social security and other purposes, including the Inland Revenue and the Contributions Agency; (viii) provision of information to potential future purchaser(s) of the Company or of Employees business unit; or (ix) transfer of information concerning Employee to a country or territory outside the European Union.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
CONATUS PHARMACEUTICALS INC. | ||
By: | /s/ Steven J. Mento | |
Name: | Steven J. Mento | |
Title: | President and Chief Executive Officer | |
/s/ Gary Burgess, M.D. | ||
Gary Burgess, M.D. |
18
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