As confidentially submitted to the Securities and Exchange Commission on April 3, 2020
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AVIDITY BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 2834 | 46-1336960 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
10975 N. Torrey Pines Road, Suite 150
La Jolla, California 92037
858-401-7900
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Sarah Boyce
President and Chief Executive Officer
Avidity Biosciences, Inc.
10975 N. Torrey Pines Road, Suite 150
La Jolla, California 92037
858-401-7900
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Cheston J. Larson Matthew T. Bush Alaina P. Ellis Latham & Watkins LLP 12670 High Bluff Drive San Diego, California 92130 (858) 523-5400 |
John W. Wallen III, Ph.D. General Counsel Avidity Biosciences, Inc. 10975 N. Torrey Pines Road, Suite 150 La Jolla, California 92037 858-401-7900 |
Richard C. Segal Charles S. Kim Divakar Gupta Will H. Cai Cooley LLP 4401 Eastgate Mall (858) 550-6000 |
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, smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
| ||||
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 |
$ | $ | ||
| ||||
|
(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 shares of common stock that the underwriters have the option to purchase. |
(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.
PRELIMINARY PROSPECTUS (Subject To Completion) |
, 2020 |
Shares
Common Stock
This is an initial public offering of shares of common stock of Avidity Biosciences, Inc. We are offering shares of our common stock.
Prior to this offering, there has been no public market for our common stock. We intend to apply to list our common stock on the Nasdaq Global Market under the symbol RNA. We expect that the initial public offering price will be between $ and $ per share.
We are an emerging growth company under applicable Securities and Exchange Commission rules and have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Our business and an investment in our common stock involve significant risks. These risks are described under the caption Risk Factors beginning on page 12 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions(1) |
$ | $ | ||||||
Proceeds, before expenses, to Avidity Biosciences, Inc. |
$ | $ |
(1) | See the section titled Underwriting for additional information regarding compensation payable to the underwriters. |
We have granted the underwriters an option for a period of 30 days to purchase up to additional shares of common stock from us at the public offering price, less the underwriting discounts and commissions.
The underwriters expect to deliver the shares of common stock to purchasers on , 2020.
Joint Book-running Managers
Cowen | SVB Leerink | |
Credit Suisse | Wells Fargo Securities |
, 2020
TABLE OF CONTENTS
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82 | ||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
84 | |
98 | ||
144 | ||
151 | ||
171 | ||
176 | ||
179 | ||
185 | ||
Material United States Federal Income Tax Consequences to Non-U.S. Holders |
188 | |
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200 | ||
200 | ||
200 | ||
F-1 |
Neither we nor the underwriters have authorized anyone to provide you with information other than that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside of the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.
This summary highlights selected 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 Risk Factors and our audited financial statements and related notes included elsewhere in this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to we, us, our, the Company, Avidity Biosciences and Avidity refer to Avidity Biosciences, Inc.
Overview
We are pioneering a new class of oligonucleotide-based therapies called Antibody Oligonucleotide Conjugates (AOCs) designed to overcome the current limitations of oligonucleotide therapies in order to treat a wide range of serious diseases. We utilize our proprietary AOC platform to design, engineer and develop therapeutics that combine the tissue selectivity of monoclonal antibodies (mAbs) and the precision of oligonucleotide therapies in order to access previously undruggable tissue and cell types and more effectively target underlying genetic drivers of diseases. We are initially focused on muscle diseases to demonstrate the capabilities of our AOCs, and our muscle franchise consists of five programs. Our lead product candidate, AOC 1001, is designed to treat myotonic dystrophy type 1 (DM1), a rare monogenic muscle disease. We expect to submit an investigational new drug application (IND) for AOC 1001 in 2021 and plan to initiate a Phase 1/2 clinical trial by the end of the same year. We also intend to advance AOC product candidates in our four other muscle programs focused on the treatment of muscle atrophy, Duchenne muscular dystrophy (DMD), facioscapulohumeral muscular dystrophy (FSHD) and Pompe disease. In addition to our muscle franchise, we have development efforts focused on immune and other cell types.
Our AOC Platform
Oligonucleotide therapeutics are designed based on genomic information to specifically inhibit or modify the expression of disease-related proteins and RNAs. Considerable progress has been made toward harnessing the potential of oligonucleotides, and multiple oligonucleotide therapies have been approved for the treatment of several diseases. However, in light of their physical properties, effective systemic delivery of oligonucleotides to a broad range of cells and organs has been one of the most significant factors limiting their utility. Our deep experience with oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques provide the foundation for our efforts to address some of the key limitations of oligonucleotide therapies. We collectively refer to the know-how and proprietary technology born out of this experience, and their systematic application in the design and development of our product candidates, as our AOC platform.
Using our AOC platform, we have established a framework for screening potential cell surface protein-mAb pairs to determine which pairs are well-suited to deliver oligonucleotides to specific cell types to induce pharmacologic changes. In addition to engineering optimized mAbs, we are able to engineer and deploy various types of oligonucleotides whose specific mechanisms of action are designed to modify RNA function in different ways. This flexibility allows us to use oligonucleotides tailored to have the potential to modulate a given disease process, and we further engineer our oligonucleotides to maximize their specificity, potency and stability. Beyond the specific mAb and oligonucleotide components of our engineered AOCs, we also optimize the antibody conjugate design, including the linker, for stability and durability.
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We believe that the product candidates derived from our AOC platform will have the potential to offer the following distinct advantages:
● | Expand scope of diseases addressable with oligonucleotides: (i) utilize identified cell surface protein-antibody pairs to design oligonucleotides in order to address various previously undruggable tissue and cell types to induce pharmacologic changes in those tissues and cells; (ii) flexibility to deploy an appropriate oligonucleotide type for different diseases; and (iii) optimize all structural components of our AOCs for effective deliverythe oligonucleotide, the mAb and the antibody conjugate design. |
● | Potential to mitigate toxicity by limiting drug exposure: (i) selection of the most potent oligonucleotide type; (ii) targeted delivery to tissues and cells; and (iii) infrequent administration. |
● | Less frequent dosing: (i) ability to deliver oligonucleotides to tissues and cells at concentrations that produce pronounced and prolonged pharmacodynamic effects as observed in our preclinical models; and (ii) ability to select appropriate oligonucleotide mechanisms to maximize durability. |
● | Readily reproducible and scalable: (i) AOCs synthesized using well-established and scalable methods for manufacturing mAbs and oligonucleotides; and (ii) ability to use a single mAb across multiple programs provides significant leverage around development costs and timelines associated with each incremental muscle program. For example, we use the same mAb targeting TfR1 across all our muscle programs. |
Our Development Programs
We have leveraged our deep experience with oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques to build a pipeline of AOC development programs. Leveraging our access to extensive mAb libraries and our framework for screening potential cell surface protein-mAb pairs, we have studied over 100 different mAbs and dozens of small interfering RNA (siRNA) sequences to form the basis of our growing pipeline. We are initially focused on muscle diseases based on our preclinical studies where we observed a 95% reduction of target gene expression in mouse skeletal muscle.
The chart below represents a summary of our wholly-owned development programs, which are focused on muscle disease:
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We also have development efforts focused on immune and other cell types. For example, we are collaborating with Eli Lilly and Company for the discovery, development and commercialization of AOCs directed to up to six messenger RNA (mRNA) targets initially in immunology and other select indications outside of muscle.
The first program in our muscle franchise is focused on the treatment of DM1 and we are developing our lead product candidate, AOC 1001, as a potentially disease modifying treatment. DM1 is a monogenic, autosomal dominant, progressive disease that primarily affects skeletal and cardiac muscle and is caused by a mutation in the dystrophy myotonic protein kinase (DMPK) gene product or DMPK RNA. DM1 is estimated to affect over 40,000 people in the United States and there are similar prevalence estimates for Europe. However, we believe that, consistent with other rare diseases, the patient population is currently underdiagnosed due to the lack of available therapies. AOC 1001 consists of a proprietary mAb that binds to a transporter protein, transferrin receptor 1 (TfR1), conjugated with an siRNA that is designed to address the underlying cause of DM1 by reducing the levels of DMPK RNA. In preclinical studies, we observed the ability of our AOC to deliver siRNAs to muscle cells and reduce levels of mRNA for the DMPK gene, the molecular driver of the disease, in a durable, dose-dependent manner. We expect to submit an IND for AOC 1001 in 2021 and we plan to initiate a Phase 1/2 clinical trial in DM1 patients by the end of the same year to assess the safety, tolerability, pharmacokinetics, pharmacodynamics and exploratory clinical measures associated with AOC 1001. Due to the lack of available therapies in this rare disease, should our trial be successful, we plan to pursue opportunities to accelerate our development pathway in order to expedite making AOC 1001 available for a patient population in severe need.
The second program in our muscle franchise is focused on muscle atrophy. Muscle atrophy is the loss of skeletal muscle mass that leads to muscle weakness and physical disability and can be caused by malnutrition, medications, injury or diseases such as sarcopenia, cachexia and many rare genetic muscle disorders. Our AOC consists of our proprietary mAb targeting TfR1 conjugated with an siRNA designed to downregulate the levels of muscle ring finger protein 1 (MuRF1) mRNA, a muscle-specific ubiquitin ligase (E3 ligase) that has been shown to be upregulated upon induction of muscle atrophy. By targeting MuRF1, we have focused on an approach employing common effectors of both the catabolic and anabolic pathways associated with the degradation of protein in muscle cells, unlike prior attempts to find therapeutics that primarily addressed either catabolic or anabolic pathways. In preclinical studies, we observed that a single 3 mg/kg dose of the siRNA in our AOC resulted in a greater than 50% reduction in MuRF1 mRNA for over 20 weeks. We are in the process of selecting a product candidate for the treatment of muscle atrophy. Following regulatory clearance, in 2022, we plan to advance a product candidate into a Phase 1 clinical trial in healthy volunteers with a limb temporarily immobilized to induce muscle atrophy. In this trial, we plan to assess pre- and post-treatment measurements of MuRF1 expression, biomarkers and histological changes, as well as certain clinical measurements that we believe could demonstrate signals of activity. Our continued development activities will inform our view on the indications and development path to pursue.
The third program in our muscle franchise is focused on DMD, which is the most common and severe form of muscular dystrophy and is progressive, irreversible and ultimately fatal. DMD occurs in approximately one in every 3,500 to 5,000 live male births and is estimated to affect 10,000 to 15,000 people in the United States. DMD is caused by mutations in the DMD gene that encodes for the gene product dystrophin, a protein critical for the normal function of muscle cells. These mutations lead to certain exons being misread resulting in the loss of function of the dystrophin protein. Our oligonucleotides are designed to promote the skipping of those exons to restore a functional version of the dystrophin protein. We are focusing our initial efforts on the development of AOCs for mutations amenable to skipping Exon 44, Exon 45 and Exon 51. We intend to conjugate the oligonucleotides to
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our proprietary mAb targeting TfR1. In a preclinical model of DMD, the mdx mouse model, we observed that treatment of mdx mice with an AOC caused a greater than 50-fold increase in exon skipping compared to an equimolar dose of the unconjugated oligonucleotide. Following regulatory clearance, we plan to commence a clinical trial for DMD in 2022.
We are also pursuing programs in FSHD and Pompe disease, both rare muscle diseases. FSHD is one of the most common forms of muscular dystrophy with onset typically in teens and young adults. FSHD is caused by aberrant expression of a gene, double homeobox 4 (DUX4), in adult skeletal muscle and is characterized by progressive skeletal muscle loss. Our therapeutic strategy in FSHD is to use an AOC based on our proprietary mAb targeting TfR1 to deliver an siRNA targeted to the DUX4 mRNA. Pompe disease is a rare, autosomal recessive lysosomal storage disease caused by a mutation in the gene that encodes for acid alpha-glucosidase (GAA) that results in the buildup of glycogen in the bodys cells, causing impairment of normal tissue and organ function. Pompe disease is currently treated with enzyme replacement therapy (ERT), which does not adequately address the breakdown of muscle tissue associated with the disease. Our program in Pompe disease also utilizes an AOC based on our proprietary mAb targeting TfR1 to deliver an siRNA targeting the glycogen synthetase 1 (GYS1) mRNA to diminish the toxic accumulation of glycogen in muscle. We are in the process of developing lead candidates for both FSHD and Pompe disease.
We also intend to pursue the development of AOCs in cell types in addition to muscle. In preclinical models, we observed the ability of AOCs not only to deliver to the liver, skeletal and cardiac muscle, but also to other tissue and cell types, including immune cells. For example, we have identified multiple receptor-antibody pairs that could be used in our AOCs in order to deliver siRNAs into different immune cells, including those related to immuno-oncology. Observations around the specificity and selectivity of our AOCs are the basis for our interest in exploring the utility of our AOCs in immunology. We plan to continue to invest in our AOC platform in order to explore the potential of our AOCs in previously inaccessible tissue and cell types in order to develop next generation oligonucleotide therapies.
We hold worldwide development and commercial rights to all our muscle programs. We have a disciplined strategy to maximize the value of our pipeline whereby we plan to retain development and commercialization rights to those product candidates, indications and geographies that we believe we can ultimately commercialize successfully on our own. We plan to collaborate on product candidates that we believe have promising utility in disease areas or patient populations that are better served by the resources or specific expertise of other biopharmaceutical companies.
Our Strategy
Our goal is to discover, develop and commercialize novel AOC therapeutics that overcome current barriers to the delivery of oligonucleotides and unlock their potential to treat a wide range of serious diseases currently lacking adequate treatment options. Key elements of our strategy to achieve this goal are to:
● | Rapidly advance our lead product candidate AOC 1001 through clinical proof-of-concept to approval. |
● | Achieve clinical proof-of-mechanism for our muscle atrophy program. |
● | Rapidly progress our DMD program into clinical development and advance our other rare muscle disease programs. |
● | Expand our pipeline into additional cell types and tissues. |
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● | Independently commercialize any approved products in indications and geographies where we believe we can maximize value and pursue other options to realize the full potential of our platform. |
Our Team and Investors
We have assembled a management team with deep experience in the discovery, development and commercialization of RNA therapeutics, including an extensive knowledge of oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques. Our President and CEO, Sarah Boyce, has significant experience in the development and commercialization of RNA therapeutics and in building global organizations, most recently having served as President of Akcea Therapeutics. Our Chief Scientific Officer, Arthur A. Levin, Ph.D., is a key opinion leader in the RNA therapeutics field who led teams responsible for the development of many oligonucleotides including the first approved antisense drugs and the first micro-RNA targeted therapeutic to enter clinical trials. Our Chief Operating Officer, Joseph Baroldi, brings a depth of business development experience in RNA therapeutics having led more than twenty strategic transactions, most recently as Vice President, Business Development at Ionis Pharmaceuticals.
In addition, our investors include leading life science institutions including RTW Investments, Alethea Capital, Alexandria Venture Investments, Boxer Capital of Tavistock Group, Brace Pharma Capital, Cormorant Asset Management, LP, CureDuchenne, EcoR1 Capital, Logos Capital, Partner Fund Management, Perceptive Advisors LLC, ST Pharm and Takeda Ventures.
Risks Related to Our Business
Our ability to execute our business strategy is subject to numerous risks, as more fully described in Risk Factors immediately following this Prospectus Summary. These risks include, among others:
● | We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it. |
● | We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. |
● | We are early in our development efforts and all of our development programs are in the preclinical or discovery stage. If we are unable to successfully develop, obtain regulatory approval and ultimately commercialize product candidates, or experience significant delays in doing so, our business will be materially harmed. |
● | Our approach to the discovery and development of product candidates based on our AOC platform is unproven, and we do not know whether we will be able to develop any products of commercial value, or if competing technological approaches will limit the commercial value of our product candidates or render our AOC platform obsolete. |
● | Preclinical and clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies and early clinical trials are not necessarily predictive of future results. We have not tested any of our product candidates in clinical trials and our product candidates may not have favorable results in clinical trials, if any, or receive regulatory approval on a timely basis, if at all. |
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● | Any difficulties or delays in the commencement or completion, or termination or suspension, of our planned clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects. |
● | We rely on third parties to conduct our preclinical studies and clinical trials and to manufacture our product candidates, and these third parties may not perform satisfactorily. |
● | We face significant competition, and if our competitors develop technologies or product candidates more rapidly than we do or their technologies are more effective, our business and our ability to develop and successfully commercialize products may be adversely affected. |
● | Our success depends on our ability to protect our intellectual property and our proprietary technologies. |
Corporate Information
We were originally founded as a Delaware limited liability company on November 13, 2012, under the name Avidity NanoMedicines LLC. On June 4, 2016, we changed our name to Avidity Biosciences LLC, and on April 1, 2019, we converted into a Delaware corporation under the name Avidity Biosciences, Inc. Our principal executive offices are located at 10975 N. Torrey Pines Road, Suite 150, La Jolla, California 92037, and our telephone number is 858-401-7900. Our website address is www.aviditybiosciences.com. The information contained in, or accessible through, our website does not constitute part of this prospectus. We have included our website address as an inactive textual reference only.
We use our pending trademark Avidity Biosciences 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.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). 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 provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced Managements Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
● | not being required to comply with the auditor attestation requirements in the assessment of our internal control of financial reporting pursuant of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley); |
● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, unless the U.S. Securities and Exchange Commission (SEC) determines the new rules are necessary for protecting the public; |
● | reduced disclosure obligations regarding executive compensation; and |
● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
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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 (the Securities Act), which such fifth anniversary will occur in 2025. However, if certain events occur prior to the end of such five-year period, including if we become a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the Exchange Act), our annual gross revenues exceed $1.07 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 prospectus and in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information in this prospectus and that we provide to our stockholders in the future may be different than what you might receive from other public reporting companies in which you hold equity interests.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
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The Offering
Common stock offered by us |
shares. |
Option to purchase additional shares |
We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional shares of our common stock from us. |
Common stock to be outstanding immediately after this offering |
shares (or shares if the underwriters exercise their option to purchase additional shares of common stock in full). |
Use of proceeds |
We intend to use the net proceeds of this offering to fund the research and development of our development programs and for working capital and general corporate purposes, including pre-commercial activities. See Use of Proceeds. |
Risk factors |
See Risk Factors on page 12 and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock. |
Proposed Nasdaq Global Market symbol |
RNA |
The number of shares of our common stock to be outstanding after this offering set forth above is based on 44,109,461 shares of our common stock outstanding as of December 31, 2019, including 410,779 shares subject to forfeiture or our right of repurchase, after giving effect to (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock immediately prior to the closing of this offering, and excludes:
● | 3,515,833 shares of common stock issuable upon the exercise of outstanding stock options as of December 31, 2019, at a weighted-average exercise price of $0.51 per share; |
● | 1,892,313 shares of common stock issuable upon the exercise of stock options granted after December 31, 2019, at a weighted-average exercise price of $0.59 per share; |
● | 36,392 shares of common stock issuable upon the exercise of outstanding warrants as of December 31, 2019, at a weighted-average exercise price of $1.16 per share; |
● | shares of common stock reserved for future issuance under our 2020 Incentive Plan (the 2020 Plan), which will become effective in connection with this offering (which number includes shares remaining available for issuance under our existing 2013 Equity Incentive Plan (the 2013 Plan) as of December 31, 2019 (which shares will become available for issuance under the 2020 Plan upon its effectiveness), but does not include any potential evergreen increases pursuant to the terms of the 2020 Plan); and |
● | shares of common stock reserved for future issuance under our 2020 Employee Stock Purchase Plan (the ESPP), which will become effective in connection with this offering (which number does not include any potential evergreen increases pursuant to the terms of the ESPP). |
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Unless otherwise indicated, all information contained in this prospectus assumes or gives effect to:
● | the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the closing of this offering; |
● | the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020; |
● | the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock immediately prior to the closing of this offering; |
● | the adjustment of outstanding warrants to purchase 16,474 shares of our Series A convertible preferred stock into warrants to purchase 16,474 shares of our common stock immediately prior to the closing of this offering; |
● | a -for- reverse stock split of our common stock to be effected prior to the closing of this offering; |
● | no exercise of the outstanding options or warrants described above; and |
● | no exercise by the underwriters of their option to purchase additional shares of our common stock. |
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Summary Financial Data
The following tables set forth a summary of our historical financial data as of, and for the periods ended on, the dates indicated. We have derived the summary statements of operations data for the years ended December 31, 2018 and 2019 and the summary balance sheet data as of December 31, 2019 from our audited financial statements included elsewhere in this prospectus. You should read these data together with our audited financial statements and related notes included elsewhere in this prospectus and Selected 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, |
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(in thousands, except share and per share data) | 2018 | 2019 | ||||||
Statements of Operations Data: |
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Revenue |
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Collaboration and contract research |
$ | 379 | $ | 2,319 | ||||
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Total revenue |
379 | 2,319 | ||||||
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Operating expenses: |
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Research and development |
8,436 | 14,539 | ||||||
General and administrative |
2,441 | 5,112 | ||||||
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Total operating expenses |
10,877 | 19,651 | ||||||
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Loss from operations |
(10,498 | ) | (17,332 | ) | ||||
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Interest and other expense: |
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Interest expense |
(718 | ) | (7,387 | ) | ||||
Change in fair value of warrant liabilities |
| (15 | ) | |||||
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Total interest and other expense |
(718 | ) | (7,402 | ) | ||||
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Net loss |
$ | (11,216 | ) | $ | (24,734 | ) | ||
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Net loss per share/unit, basic and diluted(1) |
$ | (2.15 | ) | $ | (4.32 | ) | ||
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|
|
|
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Weighted-average shares/units outstanding, basic and diluted(1) |
5,224,812 | 5,724,115 | ||||||
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|
|
|
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Pro forma net loss per share, basic and diluted (unaudited)(1) |
$ | (0.68 | ) | |||||
|
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Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(1) |
26,224,719 | |||||||
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(1) | See Note 2 to our financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical net loss per share/unit, basic and diluted, and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts. |
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As of December 31, 2019 | ||||||||||||
(in thousands) | Actual | Pro Forma(1) |
Pro Forma As Adjusted(2)(3) |
|||||||||
(unaudited) | (unaudited) | |||||||||||
Balance Sheet Data: |
||||||||||||
Cash and cash equivalents |
$ | 94,578 | $ | 96,878 | $ | |||||||
Working capital(4) |
85,440 | 87,740 | ||||||||||
Total assets |
96,907 | 99,207 | ||||||||||
Long-term debt, including current portion |
4,544 | 4,544 | ||||||||||
Convertible preferred stock |
134,720 | |||||||||||
Accumulated deficit |
(22,185 | ) | (22,185 | ) | ||||||||
Total stockholders equity (deficit) |
(65,357 | ) | 71,708 |
(1) | Gives effect to the (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and our receipt of $2.3 million in gross proceeds therefrom and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 37,804,563 shares of our common stock and the related reclassification of the carrying value of the convertible preferred stock and preferred stock warrant liabilities to permanent equity immediately prior to the closing of this offering. |
(2) | Gives effect to (i) the pro forma adjustments set forth in footnote (1) above, and (ii) the issuance and sale of shares of our common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, 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 pro forma as adjusted amount of each of our cash and cash equivalents, 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 the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price of $ per share would increase (decrease) the pro forma as adjusted amounts of each of our cash and cash equivalents, working capital, total assets and total stockholders equity (deficit) by approximately $ , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
(3) | The pro forma as adjusted 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. |
(4) | We define working capital as total current assets less total current liabilities. See our audited financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities. |
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Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our audited financial statements and related notes included elsewhere in this prospectus and in Managements Discussion and Analysis of Financial Condition and Results of Operations, before making an investment decision. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment.
Risks Related to Our Limited Operating History, Financial Position and Capital Requirements
We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a preclinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. All of our development programs, including our lead product candidate, AOC 1001, are in preclinical development or in the drug discovery stage. We commenced operations in 2012, and to date, we have focused primarily on organizing and staffing our company, business planning, raising capital, developing our proprietary AOC technology platform, identifying product candidates, establishing our intellectual property portfolio and conducting research and preclinical studies. Our approach to the discovery and development of product candidates based on our AOC platform is unproven, and we do not know whether we will be able to develop any product candidates that succeed in clinical development or products of commercial value. As an organization, we have not yet completed any clinical trials, obtained regulatory approvals, manufactured a commercial-scale product, or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products.
We have incurred significant operating losses since our inception. We do not have any products approved for sale and have not generated any product revenue since our inception. If our product candidates are not successfully developed and approved, we may never generate any significant revenue. Our net losses were $11.2 million and $24.7 million for the years ended December 31, 2018 and December 31, 2019, respectively. As of December 31, 2019, we had an accumulated deficit of $22.2 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. All of our product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as we continue our development of, seek regulatory approval for and potentially commercialize any of our product candidates.
To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, identifying lead product candidates, discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of
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these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. In addition, we 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 biopharmaceutical industry. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable may have an adverse effect on the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development programs, commercialization efforts or other operations.
The development of biopharmaceutical product candidates is capital-intensive. We expect our expenses to increase in connection with our ongoing activities, particularly as we conduct our ongoing and planned preclinical studies of our development programs, initiate clinical trials for our product candidates and seek regulatory approval for our current product candidates and any future product candidates we may develop. If we obtain regulatory approval for any of our product candidates, we also expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates. Furthermore, following the completion of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will enable us to fund our operations for at least the next months. In particular, we expect that the net proceeds from this offering and our existing cash, cash equivalents and marketable securities will allow us to . We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash resources may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other capital sources, including potentially additional collaborations, licenses and other similar arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop our product candidates.
Our future capital requirements will depend on many factors, including, but not limited to:
● | the type, number, scope, progress, expansions, results, costs and timing of, discovery, preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future; |
● | the costs and timing of manufacturing for our product candidates and commercial manufacturing if any product candidate is approved; |
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● | the costs, timing and outcome of regulatory review of our product candidates; |
● | the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; |
● | the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights; |
● | our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; |
● | the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase; |
● | the timing and amount of the milestone or other payments made to us under our Research Collaboration and License Agreement (the Lilly Agreement) with Eli Lilly and Company (Lilly) or any future collaboration agreements; |
● | the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved; |
● | our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; |
● | the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and |
● | costs associated with any products or technologies that we may in-license or acquire. |
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and commercialize our product candidates. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all.
Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential additional collaborations, licenses and other similar 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, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Our Loan and Security Agreement (as amended, the Loan Agreement) with Silicon Valley Bank (SVB) involves, and any future debt financing and preferred equity financing, if available, may involve, agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making capital expenditures, declaring dividends or encumbering our assets to secure future indebtedness. Such restrictions could adversely impact our ability to conduct our operations and execute our business plan.
If we raise additional funds through future collaborations, licenses and other similar arrangements, we may have to relinquish valuable rights to our future revenue streams, research programs, product candidates or AOC platform, or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we would be
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required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates
We are early in our development efforts and all of our development programs are in the preclinical or discovery stage. If we are unable to successfully develop, obtain regulatory approval and ultimately commercialize product candidates, or experience significant delays in doing so, our business will be materially harmed.
We are in the early stages of our development efforts and all of our development programs, including AOC 1001, are in the preclinical or drug discovery stage. We have invested substantially all of our efforts in developing our AOC platform, identifying potential product candidates and conducting preclinical studies. We will need to progress AOC 1001 and our other product candidates through IND enabling studies and receive authorization from the U.S. Food and Drug Administration (FDA) to proceed under an IND prior to initiating their clinical development. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates. The success of our product candidates will depend on several factors, including the following:
● | successful completion of preclinical studies with favorable results, including those compliant with good laboratory practices (GLP) toxicology studies, biodistribution studies and minimum effective dose studies in animals; |
● | acceptance of INDs by the FDA, or similar regulatory filing by comparable foreign regulatory authorities for the conduct of clinical trials of AOC 1001 and our other product candidates and our proposed design of future clinical trials; |
● | successful enrollment in clinical trials and completion of clinical trials with favorable results; |
● | demonstrating safety and efficacy to the satisfaction of applicable regulatory authorities; |
● | receipt of marketing approvals from applicable regulatory authorities, including new drug applications (NDAs) from the FDA and maintaining such approvals; |
● | making arrangements with our third-party manufacturers for, or establishing, commercial manufacturing capabilities; |
● | establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others; |
● | establishing and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates; |
● | maintaining an acceptable safety profile of our products following approval; and |
● | maintaining and growing an organization of people who can develop and commercialize our products and technology. |
If we are unable to develop, obtain regulatory approval for, or, if approved, successfully commercialize our product candidates, we may not be able to generate sufficient revenue to continue our business.
Our approach to the discovery and development of product candidates based on our AOC platform is unproven, and we do not know whether we will be able to develop any products of commercial value, or if competing technological approaches will limit the commercial value of our product candidates or render our AOC platform obsolete.
The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our proprietary AOC platform, which leverages a novel and
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unproven approach. While we have had favorable preclinical study results based on our technology platform, we have not yet succeeded and may not succeed in demonstrating efficacy and safety for any product candidates in clinical trials or in obtaining marketing approval thereafter. Our lead product candidate, AOC 1001, is in late preclinical development and we have not yet completed any clinical trials for any product candidate. Our research methodology and novel approach to oligonucleotide-based therapy may be unsuccessful in identifying additional product candidates, and any product candidates based on our technology platform may be shown to have harmful side effects or may have other characteristics that may necessitate additional clinical testing, or make the product candidates unmarketable or unlikely to receive marketing approval. Further, because all of our product candidates and development programs are based on our AOC platform, adverse developments with respect to one of our programs may have a significant adverse impact on the actual or perceived likelihood of success and value of our other programs.
In addition, the biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies. Our future success will depend in part on our ability to maintain a competitive position with our AOC approach. If we fail to stay at the forefront of technological change in utilizing our AOC platform to create and develop product candidates, we may be unable to compete effectively. Our competitors may render our AOC approach obsolete, or limit the commercial value of our product candidates, by advances in existing technological approaches or the development of new or different approaches (including, for example, using different mAbs or transporter protein combinations with oligonucleotides than us), potentially eliminating the advantages in our drug discovery process that we believe we derive from our research approach and proprietary technologies. By contrast, adverse developments with respect to other companies that attempt to use a similar approach to our approach may adversely impact the actual or perceived value of our AOC platform and potential of our product candidates.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.
Preclinical and clinical development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies and early clinical trials are not necessarily predictive of future results. We have not tested any of our product candidates in clinical trials and our product candidates may not have favorable results in clinical trials, if any, or receive regulatory approval on a timely basis, if at all.
Preclinical and clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot guarantee that any preclinical studies or clinical trials will be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the preclinical study or clinical trial process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of preclinical or clinical development. The historical failure rate for product candidates in our industry is high.
The results from preclinical studies or clinical trials of a product candidate may not predict the results of later clinical trials of the product candidate, and interim, topline, or preliminary results of a clinical trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. In particular, while we have conducted certain preclinical studies of AOC 1001 and other potential product candidates targeting rare muscle disorders, we do not know whether AOC 1001 or the other potential product candidates will perform in future clinical trials as they have performed in these prior studies. The positive results we have observed for our product candidates in preclinical animal models may not be predictive of our future clinical trials in humans. Furthermore, for some indications that are we are pursuing, including DM1, there are no
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animal models of the human disease and therefore the animal models may not be predictive for human disease outcomes. It is not uncommon to observe results in clinical trials that are unexpected based on preclinical studies and early clinical trials, and many product candidates fail in clinical trials despite very promising early results. We are currently conducting IND-enabling studies for AOC 1001. If unexpected observations or toxicities are observed in these studies, or in IND-enabling studies for any of our other development programs, this will delay clinical trials for AOC 1001 or our other development programs. Moreover, preclinical and clinical data may be susceptible to varying interpretations and analyses. A number of companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies.
For the foregoing reasons, we cannot be certain that our ongoing and planned preclinical studies and planned clinical trials will be successful. Any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations.
Any difficulties or delays in the commencement or completion, or termination or suspension, of our planned clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Before we can initiate clinical trials for our product candidates, we must submit the results of preclinical studies to the FDA or comparable foreign regulatory authorities along with other information, including information about product candidate chemistry, manufacturing and controls and our proposed clinical trial protocol, as part of an IND application or similar regulatory filing required for authorization to proceed with clinical development. We are currently conducting IND-enabling studies for AOC 1001, and expect to submit an IND in 2021. We expect to initiate a Phase 1/2 clinical trial of AOC 1001 by the end of 2021. We will also need to complete IND-enabling studies and submit INDs for our other development programs prior to initiating clinical development. The FDA or comparable foreign regulatory authorities may require us to conduct additional preclinical studies for any product candidate before it allows us to initiate clinical trials under any IND or similar regulatory filing, which may lead to delays and increase the costs of our preclinical development programs. Any such delays in the commencement or completion of our planned clinical trials for AOC 1001 or any other product candidate could significantly affect our product development costs.
We do not know whether our planned trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:
● | obtaining regulatory authorizations to commence a trial or reaching a consensus with regulatory authorities on trial design; |
● | the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical studies; |
● | any failure or delay in reaching an agreement with contract research organizations (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 approval from one or more institutional review boards (IRBs); |
● | IRBs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the trial; |
● | changes to clinical trial protocol; |
● | clinical sites deviating from trial protocol or dropping out of a trial; |
● | manufacturing sufficient quantities of product candidate for use in clinical trials; |
● | subjects failing to enroll or remain in our trials at the rate we expect, or failing to return for post-treatment follow-up, including subjects failing to remain in our trials due to movement |
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restrictions, heath reasons or otherwise resulting from the novel strain of coronavirus, COVID-19; |
● | subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in competing clinical trials; |
● | lack of adequate funding to continue the clinical trial; |
● | subjects experiencing severe or unexpected drug-related adverse effects; |
● | occurrence of serious adverse events in trials of the same class of agents conducted by other companies; |
● | selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data; |
● | a facility manufacturing our product candidates or any of their components being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practice (cGMP) regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process; |
● | any changes to our manufacturing process that may be necessary or desired; |
● | third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices (GCP) or other regulatory requirements; |
● | third-party contractors not performing data collection or analysis in a timely or accurate manner; or |
● | third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications. |
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or comparable foreign regulatory authorities. Such authorities may impose such a suspension or termination 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 comparable foreign 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, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial.
Further, conducting clinical trials in foreign countries, as we may do for our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of
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interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. Moreover, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues.
In addition, many of the factors that cause, or lead to, the termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. We may make formulation or manufacturing changes to our product candidates, in which case we may need to conduct additional preclinical studies to bridge our modified product candidates to earlier versions. Any delays to our clinical trials that occur as a result could shorten any period during which we may have the exclusive right to commercialize our product candidates and our competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be significantly reduced. Any of these occurrences may harm our business, financial condition and prospects significantly.
We may find it difficult to enroll patients in our clinical trials. If we encounter difficulties enrolling subjects in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Subject 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 and exclusion criteria for the trial, the design of the clinical trial, the risk that enrolled patients will not complete a clinical trial, our ability to recruit clinical trial investigators with the appropriate competencies and experience, competing clinical trials and clinicians and patients perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating as well as any product candidates under development. We will be required to identify and enroll a sufficient number of subjects for each of our clinical trials. Potential subjects for any planned clinical trials may not be adequately diagnosed or identified with the diseases which we are targeting or may not meet the entry criteria for such trials. We are initially developing product candidates targeting genetically defined, rare muscle disorders with limited patient pools from which to draw for clinical trials. Genetically defined diseases generally, including those for which our current product candidates are targeted, have low incidence and prevalence. We also may encounter difficulties in identifying and enrolling subjects with a stage of disease appropriate for our planned clinical trials and monitoring such subjects adequately during and after treatment. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible subjects to participate in the clinical trials required by the FDA or comparable foreign regulatory authorities. In addition, the process of finding and diagnosing subjects may prove costly.
The timing of our clinical trials depends, in part, on the speed at which we can recruit patients to participate in our trials, as well as completion of required follow-up periods. The eligibility criteria of our
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clinical trials, once established, will further limit the pool of available trial participants. If patients are unwilling to participate in our trials for any reason, including the existence of concurrent clinical trials for similar patient populations or the availability of approved therapies, or we otherwise have difficulty enrolling a sufficient number of patients, the timeline for recruiting subjects, conducting studies and obtaining regulatory approval of our product candidates may be delayed. Our inability to enroll a sufficient number of subjects for any of our future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we will have limited influence over their actual performance.
We cannot assure you that our assumptions used in determining expected clinical trial timelines are correct or that we will not experience delays in enrollment, which would result in the delay of completion of such trials beyond our expected timelines.
Use of our product candidates could be associated with side effects, adverse events or other properties or safety risks, which could delay or preclude approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of an approved label or result in other significant negative consequences that could severely harm our business, prospects, operating results and financial condition.
We have not evaluated any product candidates in human clinical trials. Although other oligonucleotide therapeutics have received regulatory approval, our AOCs, which combine oligonucleotides with a mAb, are a novel approach to oligonucleotide therapies, which may present enhanced risk uncertainty associated with the safety profile of AOC 1001 and other AOC therapeutics compared to more well-established classes of therapies, or oligonucleotide or mAb-based therapies on their own. Moreover, there have been only a limited number of clinical trials involving the use of oligonucleotide therapeutics and none involving the proprietary technology used in our AOC platform. It is impossible to predict when or if any product candidates we may develop will prove safe in humans. As is the case with biopharmaceuticals generally, it is likely that there may be side effects and adverse events associated with our product candidates use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. 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. Any of these occurrences may harm our business, financial condition and prospects significantly.
Moreover, if our product candidates are associated with undesirable side effects in clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate if approved. We may also be required to modify our study plans based on findings after we commence our clinical trials. Many compounds that initially showed promise in early-stage testing have later been found to cause side effects that prevented further development of the compound. In addition, regulatory authorities may draw different conclusions or require additional testing to confirm these determinations.
It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as the use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, may be reported by
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subjects. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition and prospects significantly.
Patients treated with our products, if approved, may experience previously unreported adverse reactions, and it is possible that the FDA or other regulatory authorities may ask for additional safety data as a condition of, or in connection with, our efforts to obtain approval of our product candidates. If safety problems occur or are identified after our products, if any, reach the market, we may make the decision or be required by regulatory authorities to amend the labeling of our products, recall our products or even withdraw approval for our products.
In addition, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:
● | regulatory authorities may withdraw, suspend or limit approvals of such product, or seek an injunction against its manufacture or distribution; |
● | we may be required to recall a product or change the way such product is administered to patients; |
● | regulatory authorities may require additional warnings on the label, such as a black box warning or a contraindication; |
● | we may be required to implement a Risk Evaluation and Mitigation Strategy (REMS) or create a medication guide outlining the risks of such side effects for distribution to patients; |
● | we may be required to change the way a product is distributed, conduct additional clinical trials or change the labeling of a product or be required to conduct additional post-marketing studies or surveillance; |
● | we could be sued and held liable for harm caused to patients; |
● | sales of the product may decrease significantly or the product could become less competitive; and |
● | our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
As an organization, we have never conducted any clinical trials or submitted an application for regulatory approval, and may be unable to do so for any of our product candidates.
We are early in our development efforts for our product candidates and we will need to successfully complete IND-enabling studies, Phase 1 clinical trials and later-stage and pivotal clinical trials, in order to obtain FDA or comparable foreign regulatory approval to market AOC 1001 or any other product candidates. Carrying out clinical trials and the submission of a successful NDA is a complicated process. As an organization, we plan to commence our first Phase 1/2 clinical in 2021, subject to receiving authorization to proceed under an IND. We have not previously conducted any clinical trials, have limited experience as a company in preparing, submitting and prosecuting regulatory filings and have not previously submitted an IND or an NDA or other comparable foreign regulatory submission for any product candidate. In addition, we have had limited interactions with the FDA and cannot be certain how many clinical trials of AOC 1001 or any other product candidates will be required or how such trials should be designed. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to regulatory submission and approval of any of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in submitting NDAs for and commercializing our product candidates.
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Our product candidates are subject to extensive regulation and compliance, which is costly and time consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, packaging, storage, record-keeping, advertising, promotion, import, export, marketing, distribution and adverse event reporting, including the submission of safety and other information, of our product candidates are subject to extensive regulation by the FDA in the United States and by comparable foreign regulatory authorities in foreign markets. In the United States, we are not permitted to market our product candidates until we receive regulatory approval from the FDA. The process of obtaining regulatory approval is expensive, often takes many years following the commencement of clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates involved, as well as the target indications and patient population. Approval policies or regulations may change, and the FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed. Neither we nor any current or future collaborator is permitted to market any of our product candidates in the United States until we receive approval from the FDA.
Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authorities, as the case may be, may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or may object to elements of our clinical development program.
The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate for many reasons, including:
● | such authorities may disagree with the design or implementation of our or our current or future collaborators clinical trials; |
● | negative or ambiguous results from our clinical trials or results may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval; |
● | serious and unexpected drug-related side effects may be experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates; |
● | such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the United States; |
● | we or any of our current or future collaborators may be unable to demonstrate that a product candidate is safe and effective, and that product candidates clinical and other benefits outweigh its safety risks; |
● | such authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
● | such authorities may not agree that the data collected from clinical trials of our product candidates are acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere, and such authorities may impose requirements for additional preclinical studies or clinical trials; |
● | such authorities may disagree regarding the formulation, labeling and/or the specifications of our product candidates; |
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● | approval may be granted only for indications that are significantly more limited than what we apply for and/or with other significant restrictions on distribution and use; |
● | such authorities may find deficiencies in the manufacturing processes, approval policies or facilities of our third-party manufacturers with which we or any of our current or future collaborators contract for clinical and commercial supplies; |
● | regulations of such authorities may significantly change in a manner rendering our or any of our potential future collaborators clinical data insufficient for approval; or |
● | such authorities may not accept a submission due to, among other reasons, the content or formatting of the submission. |
With respect to foreign markets, approval procedures vary among countries and, in addition to the foregoing risks, may involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed biopharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us or any of our potential future collaborators from commercializing our product candidates.
We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on specific product candidates and specific indications. As a result, we may forgo or delay pursuit of opportunities with other product candidates that could have had greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaborations, licenses and other similar arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
We may not be able to obtain or maintain orphan drug designations for any of our product candidates, and we may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs or biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan product if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the European Medicines Agencys (EMAs) Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. We have not received orphan drug designation in the United States for any product candidate. We may seek orphan drug designation in the United States and the European Union for AOC 1001 for patients with DM1, and we may seek orphan drug designation for certain of our other product candidates. There can be no assurance that the FDA or the EMAs Committee for Orphan Medicinal Products will grant orphan designation for any indication for which we apply, or that we will be able to maintain such designation.
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In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product candidate that has orphan designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the same product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity. The applicable exclusivity period is ten years in Europe, but such exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan designation or if the product is sufficiently profitable that market exclusivity is no longer justified.
Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA or comparable foreign regulatory authority can subsequently approve the same drug for the same condition if such regulatory authority concludes that the later drug is clinically superior because it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity may also be lost if the FDA later determines that the initial request for designation was materially defective. In addition, orphan drug exclusivity does not prevent the FDA from approving competing drugs for the same or similar indication containing a different active ingredient. In addition, if a subsequent drug is approved for marketing for the same or a similar indication as any of our product candidates that receive marketing approval, we may face increased competition and lose market share regardless of orphan drug exclusivity. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
We may seek Breakthrough Therapy designation or Fast Track designation by the FDA for one or more of our product candidates, but we may not receive such designation, and even if we do, such designation may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.
We may seek Breakthrough Therapy or Fast Track designation for some of our product candidates. A Breakthrough Therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs or biologics that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens.
Drugs or biologics designated as Breakthrough Therapies by the FDA may also be eligible for expedited review and approval. If a product candidate is intended for the treatment of a serious or life-threatening condition and clinical or preclinical data demonstrate the potential to address unmet medical needs for this condition, the sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we obtain Fast Track Designation for one or more of our product candidates, we may not experience a faster development process, review or approval compared to non-expedited FDA review procedures. In addition, the FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported. Fast Track Designation alone does not guarantee qualification for the FDAs priority review procedures.
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Whether to grant Breakthrough Therapy or Fast Track Designation is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for these designations, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of either of these designations for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under non-expedited FDA review procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify for either of these designations, the FDA may later decide that the product candidate no longer meet the conditions for qualification.
We may conduct certain of our clinical trials for our product candidates outside of the United States. However, the FDA and other foreign equivalents may not accept data from such trials, in which case our development plans will be delayed, which could materially harm our business.
We may conduct one or more of our clinical trials for our product candidates outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. For studies that are conducted only at sites outside of the United States and not subject to an IND, the FDA requires the clinical trial to have been conducted in accordance with GCPs, and the FDA must be able to validate the data from the clinical trial through an on-site inspection if it deems such inspection necessary. For such studies not subject to an IND, the FDA generally does not provide advance comment on the clinical protocols for the studies, and therefore there is an additional potential risk that the FDA could determine that the study design or protocol for a non-U.S. clinical trial was inadequate, which could require us to conduct additional clinical trials. There can be no assurance the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept data from our clinical trials of our product candidates, it would likely result in the need for additional clinical trials, which would be costly and time consuming and delay or permanently halt our development of our product candidates.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with:
● | additional foreign regulatory requirements; |
● | foreign exchange fluctuations; |
● | compliance with foreign manufacturing, customs, shipment and storage requirements; |
● | cultural differences in medical practice and clinical research; and |
● | diminished protection of intellectual property in some countries. |
Interim, topline and preliminary data from our preclinical studies and clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim, preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, preliminary or topline results that we
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report may differ from future results of the same trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim, preliminary or topline data from our clinical studies. Interim, topline or preliminary data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary, topline or interim data and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and the value of our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDAs ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDAs ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs and biologics or modifications to approved drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the global pandemic of COVID-19 on March 10, 2020 the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products through April 2020, and regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
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Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct our preclinical studies and will rely on third parties to conduct our future clinical trials. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, our development programs and our ability to seek or obtain regulatory approval for or commercialize our product candidates may be delayed.
We are dependent on third parties to conduct our preclinical studies and expect to rely on such third parties for our future clinical trials, including our planned Phase 1/2 clinical trial of AOC 1001. Specifically, we have used and relied on, and intend to use and rely on, medical institutions, clinical investigators, CROs and consultants to conduct our preclinical studies and planned clinical trials in accordance with our clinical protocols and regulatory requirements. These CROs, investigators and other third parties play a significant role in the conduct and timing of these trials and subsequent collection and analysis of data. While we have and will have agreements governing the activities of our third-party contractors, we have limited influence over their actual performance. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on our CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs or trial sites fail to comply with applicable GCPs, 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. In addition, our clinical trials must be conducted with products produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
There is no guarantee that any of our CROs, investigators or other third parties will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed or terminated. In addition, many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other development activities that could harm our competitive position. In addition, principal investigators for our clinical trials are expected to serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA of any NDA we submit. Any such delay or rejection could prevent us from commercializing our product candidates.
If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms or at all. Switching or adding additional CROs, investigators and other third parties involves additional cost and requires our managements 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. Though we carefully manage our relationships with our CROs, investigators and other third parties, 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, financial condition and prospects.
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We rely on third parties for the manufacture of our product candidates for preclinical and clinical development. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not own or operate manufacturing facilities and have no plans to develop our own clinical or commercial-scale manufacturing capabilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates and related raw materials for preclinical and clinical development, as well as for commercial manufacture if any of our product candidates receive marketing approval. The facilities used by third-party manufacturers to manufacture our product candidates must be approved by the FDA and any comparable foreign regulatory authority pursuant to inspections that will be conducted after we submit an NDA to the FDA or any comparable filing to a foreign regulatory authority. We do not control the manufacturing process of, and are completely dependent on, third-party manufacturers for compliance with cGMP requirements for manufacture of products. If these third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or any comparable foreign regulatory authority, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. Our AOCs, including AOC 1001, consist of a proprietary mAb conjugated with the oligonucleotide therapy. All of our mAbs are manufactured by starting with cells which are stored in a cell bank. We have multiple working cell banks and one master cell bank for our mAbs manufactured in accordance with cGMP and believe we would have adequate backup should any cell bank be lost in a catastrophic event. However, it is possible that we could lose multiple cell banks and have our manufacturing impacted by the need to replace the cell banks. In addition, we have no control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.
Our or a third partys failure to execute on our manufacturing requirements on commercially reasonable terms and in compliance with cGMP could adversely affect our business in a number of ways, including:
● | an inability to initiate clinical trials of our product candidates under development; |
● | delay in submitting regulatory applications, or receiving marketing approvals, for our product candidates; |
● | subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities; |
● | requirements to cease development or to recall batches of our product candidates; and |
● | in the event of approval to market and commercialize our product candidates, an inability to meet commercial demands for our product candidates or any other future product candidates. |
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In addition, we may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
● | failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance; |
● | breach of the manufacturing agreement by the third party; |
● | failure to manufacture our product according to our specifications; |
● | failure to manufacture our product according to our schedule or at all; |
● | misappropriation of our proprietary information, including our trade secrets and know-how; and |
● | termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. |
Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.
Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval, and any related remedial measures may be costly or time consuming to implement. We do not currently have arrangements in place for redundant supply or a second source for all required raw materials used in the manufacture of our product candidates. If our existing or future third-party manufacturers cannot perform as agreed, we may be required to replace such manufacturers and we may be unable to replace them on a timely basis or at all.
Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we currently rely on third parties to manufacture our product candidates and to perform quality testing, we must, at times, share our proprietary technology and confidential information, including trade secrets, with them. We seek to protect our proprietary technology, in part, by entering into confidentiality agreements, and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are intentionally or inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets and despite our efforts to protect our trade secrets, a competitors discovery of our proprietary technology and confidential information or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business, financial condition, results of operations and prospects.
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We are dependent on the Lilly Agreement for the discovery, development and commercialization of AOCs directed against certain targets in immunology and other select indications. Under certain circumstances, Lilly may unilaterally terminate the agreement for convenience, which could materially and adversely affect our business.
In April 2019, we entered into the Lilly Agreement for the discovery, development and commercialization of AOCs directed against certain targets in immunology and other select indications (Lilly AOCs). Under the Lilly Agreement, Lilly will be solely responsible for funding the cost of preclinical research and discovery activities, clinical development, regulatory approval and commercialization for the Lilly AOCs. Lilly primarily controls the research and development activities, pursuant to the terms of the Lilly Agreement, and our lack of control over such activities could result in delays or other difficulties in the development and commercialization of the Lilly AOCs. Any dispute with Lilly may result in the delay or termination of the research, development or commercialization of the Lilly AOCs, and may result in costly litigation that diverts our managements attention and resources away from our day-to-day activities and which may adversely affect our business, financial condition, results of operation and prospects.
In addition, Lilly can terminate the Lilly Agreement (including for convenience), and in the event Lilly terminates the Lilly Agreement, we would be prevented from receiving any research and development funding, milestone payments, royalty payments and other benefits under the agreement. In addition, any decision by Lilly to terminate the Lilly Agreement may negatively impact public perception of our AOC product candidates, which could adversely affect the market price of our common stock. We cannot provide any assurance with respect to the success of the collaboration with Lilly. Any of the foregoing events could have a materially adverse effect on our on our business, financial condition, results of operations and prospects.
We may seek to enter into additional collaborations, licenses and other similar arrangements and may not be successful in doing so, and even if we are, we may relinquish valuable rights and may not realize the benefits of such relationships.
We may seek to enter into collaborations, joint ventures, licenses and other similar arrangements for the development or commercialization of our product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints. We may not be successful in our efforts to establish such collaborations for our product candidates because our research and development pipeline may be insufficient, our product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we face significant competition in seeking appropriate strategic partners, and the negotiation process can be time-consuming and complex. We may have to relinquish valuable rights to our future revenue streams, research programs, product candidates or AOC platform, or grant licenses on terms that may not be favorable to us, as part of any such arrangement, and such arrangements may restrict us from entering into additional agreements with other potential collaborators. We cannot be certain that, following a collaboration, license or strategic transaction, we will achieve an economic benefit that justifies such transaction.
Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, the development or approval of a product candidate is delayed, the safety of a product candidate is questioned or the sales of an approved product candidate are unsatisfactory.
In addition, any potential future collaborations may be terminable by our strategic partners, and we may not be able to adequately protect our rights under these agreements. Furthermore, strategic partners may negotiate for certain rights to control decisions regarding the development and commercialization of our product candidates, if approved, and may not conduct those activities in the
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same manner as we do. Any termination of collaborations we enter into in the future, or any delay in entering into collaborations related to our product candidates, could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Commercialization of Our Product Candidates
Even if we receive regulatory approval for any product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions on marketing or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Following potential approval of any our product candidates, the FDA may impose significant restrictions on a products indicated uses or marketing or impose ongoing requirements for potentially costly and time consuming post-approval studies, post-market surveillance or clinical trials to monitor the safety and efficacy of the product. The FDA may also require a REMS as a condition of approval of our product candidates, which could include 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 our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our products 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 cGMPs and GCP requirements for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our products, 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 our products, withdrawal of the product from the market or voluntary or mandatory product recalls; |
● | restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical trials; |
● | fines, restitutions, disgorgement of profits or revenues, warning letters, untitled 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 approvals; |
● | product seizure or detention, or refusal to permit the import or export of our products; and |
● | injunctions or the imposition of civil or criminal penalties. |
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity.
In addition, if any of our product candidates are approved, our product labeling, advertising and promotion will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the products approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless, in
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their independent medical judgment, prescribe it to their patients in a manner that is inconsistent with the approved label. The FDA does not regulate the behavior of physicians in their choice of treatments but the FDA does restrict manufacturers communications on the subject of off-label use of their products. If we are found to have promoted such off-label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
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 our product candidates. 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.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current U.S. administration may impact our business and industry. Namely, the current U.S. administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDAs ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented, and the extent to which they will impact the FDAs ability to exercise its regulatory authority. If these executive actions impose constraints on the FDAs ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
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.
The commercial success of our product candidates will depend upon the degree of market acceptance of such product candidates by physicians, patients, healthcare payors and others in the medical community.
Our product candidates may not be commercially successful. Even if any of our product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payors or the medical community. The commercial success of any of our current or future product candidates will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications. The degree of market acceptance of our products will depend on a number of factors, including:
● | demonstration of clinical efficacy and safety compared to other more-established products; |
● | the indications for which our product candidates are approved; |
● | the limitation of our targeted patient population and other limitations or warnings contained in any FDA-approved labeling; |
● | acceptance of a new drug for the relevant indication by healthcare providers and their patients; |
● | the pricing and cost-effectiveness of our products, as well as the cost of treatment with our products in relation to alternative treatments and therapies; |
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● | our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government healthcare programs, including Medicare and Medicaid, private health insurers and other third-party payors; |
● | the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in the absence of sufficient third-party coverage and adequate reimbursement; |
● | any restrictions on the use of our products, and the prevalence and severity of any adverse effects; |
● | potential product liability claims; |
● | the timing of market introduction of our products as well as competitive drugs; |
● | the effectiveness of our or any of our current or potential future collaborators sales and marketing strategies; and |
● | unfavorable publicity relating to the product. |
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors or patients, we may not generate sufficient revenue from that product and may not become or remain profitable. Our efforts to educate the medical community and third-party payors regarding the benefits of our products may require significant resources and may never be successful.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found or alleged to have improperly promoted off-label uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, as our product candidates would be, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the products approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also required companies to enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
The successful commercialization of our product candidates, if approved, will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels and favorable pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our products could limit our ability to market those products and decrease our ability to generate revenue.
The availability of coverage and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as our product candidates, if approved. Our ability to achieve coverage and acceptable levels of reimbursement for our products by third-party payors will have an effect on our ability to successfully commercialize those products. Moreover, we are initially developing product candidates targeting rare muscle disorders with small patient populations. In order for products that are designed to treat smaller patient populations to be commercially viable, the reimbursement for such products must be higher, on a relative basis, to account for the lack of volume. Accordingly, we will need to implement a coverage and reimbursement strategy for any approved product candidate with a smaller patient population that accounts for the smaller potential market size. Even if we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. For products administered under the supervision of a physician, obtaining
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coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. We cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.
Third-party payors increasingly are challenging prices charged for biopharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider our products as substitutable and only offer to reimburse patients for the less expensive product. Even if we are successful in demonstrating improved efficacy or improved convenience of administration with our products, pricing of existing drugs may limit the amount we will be able to charge for our products. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our products and may not be able to obtain a satisfactory financial return on products that we may develop.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our products.
Obtaining and maintaining reimbursement status is time consuming, costly and uncertain. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs. However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on the pricing and usage of our products. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our products. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the
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level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our products. We expect to experience pricing pressures in connection with the sale of any of our products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
We face significant competition, and if our competitors develop technologies or product candidates more rapidly than we do or their technologies are more effective, our business and our ability to develop and successfully commercialize products may be adversely affected.
The biotechnology and biopharmaceutical industries are characterized by rapid advancing technologies, intense competition and a strong emphasis on proprietary and novel products and product candidates. Our competitors have developed, are developing or may develop products, product candidates and processes competitive with our product candidates. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we may attempt to develop product candidates. In particular, there is intense competition amongst RNA targeted therapies. Our competitors include larger and better funded pharmaceutical, biopharmaceutical, biotechnological and therapeutics companies. Moreover, we may also compete with universities and other research institutions who may be active in the indications we are targeting and could be in direct competition with us. We also compete with these organizations to recruit management, scientists and clinical development personnel, which could negatively affect our level of expertise and our ability to execute our business plan. We will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials and in identifying and in-licensing new product candidates. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
We expect to face competition from existing products and products in development for each of our product candidates. With respect to AOC 1001, there are currently no approved therapies to treat the underlying cause of DM1. Products currently in development to treat DM1 include: tideglusib, a GSK3-ß inhibitor in late-stage clinical development by AMO Pharma for the congenital phenotype of DM1; ERX-963, which is in early clinical development by Expansion Therapeutics, Inc. for the treatment of excessive daytime sleepiness in DM1; AT466, which is an AAV-antisense candidate in preclinical development by Audentes Therapeutics, Inc.; and an antibody linked oligonucleotide in preclinical development by Dyne Therapeutics Inc.
Current treatments for muscle atrophy are primarily focused on nutritional intake and physical exercise. Other products in developments for muscle atrophy in cachexia include: adlumiz and AEZS-130, which are ghrelin agonists in a Phase 3 clinical trial by Helsinn Healthcare SA and a Phase 2 trial by Aeterna Zentaris Inc., respectively; GSK2881078, an androgen receptor modulator in Phase 2 clinical in development by GlaxoSmithKline plc; NGM120, a GSF15 inhibitor by NGM Biopharmaceuticals Inc.; and PF-06946860 in Phase 1 clinical development by Pfizer Inc.
Currently patients with DMD are treated with corticosteroids to manage the inflammatory component of the disease. Deflazacort is an FDA approved corticosteroid marketed by PTC Therapeutics, Inc. In addition, there are two FDA approved exon skipping drugs marketed by Sarepta Therapeutics, Inc.: Eteplirsen, an unconjugated PMO approved for DMD patients amendable to skipping Exon 51; and Vyondys 53 for the treatment of DMD patients amenable to skipping Exon 53. Companies focused on developing treatments for DMD that target dystrophin mechanisms, as does
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our DMD program, include Sarepta Therapeutics with SRP-5051, a PPMO currently being evaluated in a Phase 2 clinical trial for patients amenable to Exon 51 skipping 51, and PTC Therapeutics with ataluren, a small molecule targeting nonsense mutations in a Phase 3 clinical trial. In addition, several companies are developing gene therapies, including Milo Biotechnology (AAV1-FS344), Pfizer (PF-06939926),Sarepta Therapeutics (SRP-9001 and Galgt2 gene therapy program), and Solid Biosciences Inc. (SGT-001). We are also aware of several companies targeting non-dystrophin mechanisms for the treatment of DMD.
There are currently no therapies to treat the underlying cause of FSHD. Products currently in development to treat FSHD include: creatine monohydrate, a supplement that enhances muscle performance, which is being evaluated in a Phase 2 clinical trial by Murdoch Childrens Research Institute, and losmapimod, a p38 MAPK inhibitor that may modulate DUX4 expression, which is being evaluated in a Phase 2 clinical trial by Fulcrum Therapeutics Inc. The only approved therapy for Pompe disease is Lumizyme (known as Myozyme outside of the United States), an ERT delivered by bi-weekly intravenous infusion, and marketed by Sanofi Genzyme. We are aware of multiple ERT therapies in clinical development, including AT-GAA, which uses a pharmacological chaperone, in a Phase 3 clinical trial by Amicus Therapeutics, Inc., and neoGAA in a Phase 3 clinical trial by Sanofi Genzyme. In addition, several companies are developing gene therapies, including Actus Therapeutics, Inc. ( ACTUS101), Asklepios BioPharmaceutical, Inc. (AAV2/8-LSPhGAA), Audentes Therapeutics (AT845) and Spark Therapeutics, Inc. (SPK-3006).
We will also compete more generally with other companies developing alternative scientific and technological approaches, including other companies working to develop conjugates with oligonucleotides for extra-hepatic delivery, including Alnylam Pharmaceuticals, Aro Biotherapeutics, Arrowhead Therapeutics, Dyne Therapeutics, Ionis Pharmaceuticals and Sarepta Therapeutics, as well as gene therapy and CRISPR approaches.
Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than we do. If we successfully obtain approval for any product candidate, we will face competition based on many different factors, including the safety and effectiveness of our products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, more convenient, less expensive or marketed and sold more effectively than any products we may develop. Competitive products or technological approaches may make any products we develop, or our AOC platform, obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. If we are unable to compete effectively, our opportunity to generate revenue from the sale of our products we may develop, if approved, could be adversely affected.
If the market opportunities for our products are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
The precise incidence and prevalence for all the conditions we aim to address with our product candidates are unknown. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new trials may change the estimated incidence or prevalence of these diseases. The total addressable market across all of our product candidates will ultimately depend upon, among other things, the diagnosis criteria included in the final label for each of our product candidates approved for sale for these indications, the availability of
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alternative treatments and the safety, convenience, cost and efficacy of our product candidates relative to such alternative treatments, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the United States and other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for our product candidates, because some of our potential target populations are very small, we may never achieve profitability despite obtaining such significant market share.
We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenue.
We have no internal sales, marketing or distribution capabilities, nor have we commercialized a product. If any of our product candidates ultimately receives regulatory approval, we must build a marketing and sales organization with technical expertise and supporting distribution capabilities to commercialize each such product in major markets, which will be expensive and time consuming, or collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We have no prior experience as a company in the marketing, sale and distribution of biopharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we are not successful in commercializing our products, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant additional losses.
Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future growth may depend, in part, on our ability to develop and commercialize our product candidates in foreign markets. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from applicable regulatory authorities in foreign markets, and we may never receive such regulatory approvals for any of our product candidates. To obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical trials, commercial sales, pricing and distribution of our product candidates. If we obtain regulatory approval of our product candidates and ultimately commercialize our products in foreign markets, we would be subject to additional risks and uncertainties, including:
● | different regulatory requirements for approval of drugs in foreign countries; |
● | reduced protection for intellectual property rights; |
● | the existence of additional third-party patent rights of potential relevance to our business; |
● | unexpected changes in tariffs, trade barriers and regulatory requirements; |
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● | 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 currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; |
● | foreign reimbursement, pricing and insurance regimes; |
● | workforce uncertainty in countries where labor unrest is common; |
● | production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
● | business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. |
Risks Related to Our Business Operations and Industry
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:
● | the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to our product candidates, which may change from time to time; |
● | coverage and reimbursement policies with respect to our product candidates, if approved, and potential future drugs that compete with our products; |
● | the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with third-party manufacturers; |
● | the timing and amount of the milestone or other payments we may receive under the Lilly Agreement; |
● | expenditures that we may incur to acquire, develop or commercialize additional product candidates and technologies; |
● | the level of demand for any approved products, which may vary significantly; |
● | future accounting pronouncements or changes in our accounting policies; and |
● | the timing and success or failure of preclinical studies or clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners. |
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.
This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide.
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We are dependent on the services of our management and other clinical and scientific personnel, and if we are not able to retain these individuals or recruit additional management or clinical and scientific personnel, our business will suffer.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management, particularly Arthur Levin, Ph.D., our Chief Scientific Officer, as well as our senior scientists and other members of our management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, initiation or completion of our preclinical studies and clinical trials or the commercialization of our product candidates. Although we have executed employment agreements or offer letters with each member of our senior management team, these agreements are terminable at will with or without notice and, therefore, we may not be able to retain their services as expected. We do not currently maintain key person life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not have adequate compensation for the loss of the services of these individuals.
We will need to expand and effectively manage our managerial, operational, financial and other resources in order to successfully pursue our clinical development and commercialization efforts. We may not be successful in maintaining our unique company culture and continuing to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biopharmaceutical, biotechnology and other businesses, particularly in the San Diego area. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, integrate, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.
We may encounter difficulties in managing our growth and expanding our operations successfully.
We had 36 full-time employees as of March 31, 2020. As we continue development and pursue the potential commercialization of our product candidates, as well as function as a public company, we will need to expand our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively.
The terms of our Loan Agreement place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.
As of December 31, 2019, we have an outstanding term loan in the principal amount of $4.2 million under our Loan Agreement with SVB. The term loan is secured by a lien covering substantially all of our personal property, rights and assets, excluding intellectual property, which is subject to a negative pledge. The Loan Agreement contains customary affirmative and negative covenants and events of default applicable to us. The affirmative covenants include, among others, covenants requiring us to maintain governmental approvals, deliver certain financial reports, maintain insurance coverage and protect material intellectual property. The negative covenants include, among others, restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying cash dividends or making other distributions, making investments, creating liens, selling assets and making any payment on subordinated debt, in each case subject to certain exceptions. The restrictive covenants of the Loan Agreement could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial. In addition, SVB could declare a default upon the occurrence of any event that it interprets as a material adverse change as defined under the Loan
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Agreement. If we default under the Loan Agreement, SVB may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, SVBs right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. Any declaration by SVB of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
We are subject to various federal, state and foreign healthcare and privacy laws and regulations, which could increase compliance costs, and our failure to comply with these laws and regulations could harm our results of operations and financial condition.
Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors and customers expose us to broadly applicable foreign, federal and state fraud and abuse and other healthcare and privacy laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute any products for which we obtain marketing approval. Such laws include:
● | the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti- Kickback Statute or specific intent to violate it in order to have committed a violation; |
● | the federal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making or causing to be made a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; |
● | the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
● | the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (CMS), information related to payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by such healthcare professionals and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report |
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such information regarding payments and transfers of value provided, as well as ownership and investment interests held, during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists and certified nurse-midwives; |
● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; some state laws require biotechnology companies to comply with the biotechnology industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; some state laws that require biotechnology companies to report information on the pricing of certain drug products; and some state and local laws require the registration or pharmaceutical sales representatives; and |
● | foreign, federal and state data privacy, data security, and data breach notification laws, regulations, standards, and codes of conduct that may govern the collection, use, disclosure and protection of health-related and other personal information. HIPAA imposes requirements relating to the privacy, security and transmission of individually identifiable health information. HIPAA requires covered entities to limit the use and disclosure of protected health information. The U.S. federal government may impose civil, criminal and administrative fines and penalties and/or additional reporting or oversight obligations for a violation of HIPAAs requirements. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, makes HIPAAs privacy and security standards directly applicable to business associates, independent contractors or agents of covered entities, created tiers of civil monetary penalties, makes civil or criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions to enforce HIPAA and seek attorneys fees and costs. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by federal law, and may have a more prohibitive effect than federal law, thus complicating compliance efforts. |
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare and privacy laws and regulations will involve ongoing substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare program.
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Recently enacted legislation, future legislation and healthcare reform measures may increase the difficulty and cost for us to obtain marketing approval for and commercialize our product candidates and may affect the prices we may set.
In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system, including cost-containment measures that may reduce or limit coverage and reimbursement for newly approved drugs and affect our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare.
For example, in March 2010, the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act, collectively, the ACA) was enacted in the United States. Among the provisions of the Affordable Care Act of importance to our potential product candidates, the Affordable Care Act: established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; extended manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; expands eligibility criteria for Medicaid programs; expands the entities eligible for discounts under the Public Health program; increases the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; creates a new Medicare Part D coverage gap discount program; establishes a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research; and establishes a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the current U.S. administration to repeal or replace certain aspects of the ACA. For example, H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, informally titled the Tax Cuts and Jobs Act (the Tax Act), includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year (commonly referred to as the individual mandate.). On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit affirmed the District Courts decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case and has allotted one hour for oral arguments, which are expected to occur in the fall. It is unclear how such litigation and other efforts to challenge, repeal or replace the ACA will impact the ACA and our business.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, resulted in reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2029 unless additional Congressional action is taken. The CARES Act will suspend these Medicare sequester reductions from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
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Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the current U.S. administrations budget proposal for the fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients and increase patient access to lower-cost generic and biosimilar drugs. Although a number of these and other measures may require additional authorization to become effective, Congress and the current U.S. administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates, if approved, or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.
We expect that the ACA, these new laws and other healthcare reform measures that may be adopted in the future may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates, if approved.
We and any of our third-party manufacturers or suppliers may use potent chemical agents and hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.
We and any of our third-party manufacturers or suppliers and current or potential future collaborators will use biological materials, potent chemical agents and may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety of the environment. Our operations and the operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. In the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
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Although we maintain workers compensation insurance for certain costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for toxic tort claims that may be asserted against us in connection with our storage or disposal of biologic, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations, which have tended to become more stringent over time. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions or liabilities, which could materially adversely affect our business, financial condition, results of operations and prospects.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.
We face an inherent risk of product liability as a result of the clinical trials of our product candidates and will face an even greater risk if we commercialize our product candidates. For example, we may be sued if our product candidates allegedly cause injury or are found to be otherwise unsuitable during product 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 candidate, negligence, strict liability and a breach of warranties. Claims may be brought against us by clinical trial participants, patients or others using, administering or selling products that may be approved in the future. 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 or cease the commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
● | decreased demand for our products; |
● | injury to our reputation and significant negative media attention; |
● | withdrawal of clinical trial participants; |
● | costs to defend the related litigation; |
● | a diversion of our managements time and our resources; |
● | substantial monetary awards to trial participants or patients; |
● | product recalls, withdrawals or labeling, marketing or promotional restrictions; |
● | significant negative financial impact; |
● | the inability to commercialize our product candidates; and |
● | a decline in our stock price. |
We currently do not hold product liability insurance coverage, but will need to obtain this insurance coverage prior to commencing clinical trials of our product candidates. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive. 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 our product candidates. Although we will 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. Our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that
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are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include property, general liability, employment benefits liability, business automobile, workers compensation, products liability, malicious invasion of our electronic systems, and clinical trials, and directors and officers, employment practices and fiduciary liability insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations.
We and any of our current and potential future collaborators will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
If we or any of our current and potential future collaborators are successful in commercializing our products, the FDA and foreign regulatory authorities would require that we and such collaborators report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any of our current or potential future collaborators or CROs may fail to report adverse events within the prescribed timeframe. If we or any of our current or potential future collaborators or CROs fail to comply with such reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future products.
Our internal computer systems, or those of any of our CROs, manufacturers, other contractors or consultants or current or potential future collaborators, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the collection, use, and dissemination of such data. In the ordinary course of business, we collect, store, transmit and otherwise process large amounts of data including, without limitation, proprietary business information and personal information. Despite the implementation of security measures, our internal technology systems (including infrastructure) and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to damage from computer viruses, cybersecurity threats (such as denial-of-service attacks, cyber-attacks or cyber-intrusions over the Internet, hacking, phishing and other social engineering attacks), unauthorized access or use, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations or result in the unauthorized disclosure of or access to personally identifiable information or individually identifiable health information (violating certain privacy laws such as GDPR), it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other similar disruptions. Some of the federal, state and foreign government requirements include obligations of companies to notify individuals of security breaches involving particular personally identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships.
Any security breach or other incident, whether real or perceived, could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our
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expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers. For example, the loss of clinical trial data from clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. We also rely on third parties to manufacture our product candidates, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any real or perceived disruption or security breach affects our systems (or those of our third-party collaborators, service providers, contractors or consultants) or were to result in a loss of or accidental, unlawful or unauthorized access to, use of, release of, or other processing of personally identifiable information, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, the further development and commercialization of our product candidates could be delayed, and we could be subject to significant fines, penalties or liabilities for any noncompliance to certain privacy and security laws. For further discussion on the potential liability related to the violation of these laws, see Risk FactorsWe, our collaborators and our service providers may be subject to a variety of privacy and data security laws and contractual obligations, which could increase compliance costs and our failure to comply with them could subject us to potentially significant fines or penalties and otherwise harm our business.
Our business is subject to risks arising from epidemic diseases, such as the recent global outbreak of the coronavirus.
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19, or other public health epidemic, poses the risk that we or our employees, contractors, including our CROs, suppliers, collaborators and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governmental authorities could disrupt the supply chain and the manufacture or shipment of drug substances and finished drug products or mAbs for our product candidates for use in our research, preclinical studies and clinical trials, delay, limit or prevent our employees and CROs from continuing research and development activities, impede our clinical trial recruitment and the ability of patients to continue in clinical trials, impede testing, monitoring, data collection and analysis and other related activities, any of which could delay our preclinical studies and clinical trials and increase our development costs, and have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak could also potentially affect the business of the FDA, EMA or other regulatory authorities, which could result in delays in meetings related to planned clinical trials. The COVID-19 pandemic and mitigation measures has had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairing our ability to raise capital when needed. The extent to which the COVID-19 pandemic impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Business disruptions could seriously harm our future revenue 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. We rely on third-party manufacturers to produce our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption. In addition, our corporate headquarters is located in San Diego, California near major earthquake faults and fire zones, and the ultimate impact on us of being located near major earthquake faults and fire zones and being
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consolidated in a certain geographical area is unknown. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
Our business could be affected by litigation, government investigations and enforcement actions.
We currently operate in a number of jurisdictions in a highly regulated industry and we could be subject to litigation, government investigation and enforcement actions on a variety of matters in the United States. or foreign jurisdictions, including, without limitation, intellectual property, regulatory, product liability, environmental, whistleblower, false claims, privacy, anti-kickback, anti-bribery, securities, commercial, employment and other claims and legal proceedings which may arise from conducting our business. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, equitable remedies, including disgorgement, injunctive relief and/or other sanctions against us, and remediation of any such findings could have an adverse effect on our business operations.
Legal proceedings, government investigations and enforcement actions can be expensive and time consuming. An adverse outcome resulting from any such proceeding, investigations or enforcement actions could result in significant damages awards, fines, penalties, exclusion from the federal healthcare programs, healthcare debarment, injunctive relief, product recalls, reputational damage and modifications of our business practices, which could have a material adverse effect on our business and results of operations.
Our employees and independent contractors, including principal investigators, CROs, consultants and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees and independent contractors, including principal investigators, CROs, consultants and vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate: (1) the laws and regulations of the FDA and other similar regulatory requirements, including those laws that require the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, including cGMP requirements, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad or (4) laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
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We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We could face criminal liability and other serious consequences for violations, which could harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Departments Office of Foreign Assets Controls and anti-corruption and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, CROs, contractors and other collaborators and partners from authorizing, promising, offering, providing, soliciting or receiving, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our products abroad once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, CROs, contractors and other collaborators and partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.
We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of intellectual property, products or technologies. Additional potential transactions that we may consider in the future include a variety of business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any future transactions could increase our near and long-term expenditures, result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development expenses, any of which could affect our financial condition, liquidity and results of operations. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all. These transactions may never be successful and may require significant time and attention of our management. In addition, the integration of any business that we may acquire in the future may disrupt our existing business and may be a complex, risky and costly endeavor for which we may never realize the full benefits of the acquisition. Accordingly, although there can be no assurance that we will undertake or successfully complete any additional transactions of the nature described above, any additional transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
The global credit and financial markets have recently experienced extreme volatility and disruptions, 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
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affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, 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 an economic downturn, which could directly affect our ability to attain our operating goals on schedule and on budget.
Changes in U.S. tax law may materially adversely affect our financial condition, results of operations and cash flows.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law to address the COVID-19 crisis. The CARES Act is an approximately $2 trillion emergency economic stimulus package that includes numerous U.S. federal income tax provisions, including the modification of: (i) net operating loss (NOL) rules (as discussed below), (ii) the alternative minimum tax refund and (iii) business interest deduction limitations under Section 163(j) of the Internal Revenue Code of 1986, as amended (the Code).
The Tax Act also significantly changed the U.S. federal income taxation of U.S. corporations. The Tax Act remains unclear in many respects and has been, and may continue to be, the subject of amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (IRS), which have lessened or increased certain adverse impacts of the Tax Act and may continue to do so in the future. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. We continue to work with our tax advisors and auditors to determine the full impact the Tax Act and the CARES Act will have on us. We urge our investors to consult with their legal and tax advisors with respect to both the Tax Act and the CARES Act and the potential tax consequences of investing in our common stock.
Our ability to use net operating loss carryforwards and other tax attributes may be limited in connection with this offering or other ownership changes.
We have incurred substantial losses during our history, do not expect to become profitable in the near future and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire (if at all). At December 31, 2019, we had federal and state NOL carryforwards of approximately $15.3 million and $15.0 million, respectively.
Under the Tax Act, federal NOL carryforwards generated in periods after December 31, 2017, may be carried forward indefinitely. Under the CARES Act, NOL carryforwards arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding the tax year of such loss. Because we had no taxable income in our tax year ended December 31, 2019, which was our first corporate tax year, we do not anticipate that such provision of the CARES Act will be relevant to us. The deductibility of federal NOL carryforwards, particularly for tax years beginning after December 31, 2020, may be limited. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.
In addition, our NOL carryforwards are subject to review and possible adjustment by the IRS, and state tax authorities. Under Section 382 of the Code, our federal NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership of our company. An ownership change pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a companys stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Our ability to utilize our NOL carryforwards and other tax attributes to offset future
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taxable income or tax liabilities may be limited as a result of ownership changes, including potential changes in connection with this offering. Similar rules may apply under state tax laws. We have not yet determined the amount of the cumulative change in our ownership resulting from this offering or other transactions, or any resulting limitations on our ability to utilize our NOL carryforwards and other tax attributes. If we earn taxable income, such limitations could result in increased future income tax liability to us and our future cash flows could be adversely affected. We have recorded a full valuation allowance related to our NOL carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our therapeutic programs and other proprietary technologies we develop, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our therapeutic programs and other proprietary technologies we may develop may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our therapeutic programs and other proprietary technologies we may develop. We seek to protect our proprietary position, in part, by filing patent applications in the United States and abroad relating to our therapeutic programs and other proprietary technologies we may develop. If we are unable to obtain or maintain patent protection with respect to our therapeutic programs and other proprietary technologies we may develop, our business, financial condition, results of operations and prospects could be materially harmed.
Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our protection. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection against competitors or other third parties.
The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in any of our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of our patent
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rights are highly uncertain. Our patent applications may not result in patents being issued which protect our therapeutic programs and other proprietary technologies we may develop or which effectively prevent others from commercializing competitive technologies and products.
Moreover, the claim coverage in a patent application can be significantly reduced before the patent is granted. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage. Any patents issuing from our patent applications may be challenged, narrowed, circumvented or invalidated by third parties. Consequently, we do not know whether our therapeutic programs and other proprietary technology will be protectable or remain protected by valid and enforceable patents. Even if a patent is granted, our competitors or other third parties may be able to circumvent the patent by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations and prospects. In addition, given the amount of time required for the development, testing and regulatory review of our therapeutic programs and eventual product candidates, patents protecting the product candidates might expire before or shortly after such product candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third-party pre-issuance submission of prior art to the United States Patent and Trademark Office (USPTO) or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or other similar proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize our therapeutic programs and other proprietary technologies we may develop and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
We may not be able to protect our intellectual property and proprietary rights throughout the world.
Filing, prosecuting and defending patents on our therapeutic programs and other proprietary technologies we may develop in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. In addition, some jurisdictions, such as Europe, Japan and China, may have a higher standard for patentability than in the United States, including, for
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example, the requirement of claims having literal support in the original patent filing and the limitation on using supporting data that is not in the original patent filing. Under those heightened patentability requirements, we may not be able to obtain sufficient patent protection in certain jurisdictions even though the same or similar patent protection can be secured in U.S. and other jurisdictions.
Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act (the America Invents Act) enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us
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could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either (i) file any patent application related to our therapeutic programs and other proprietary technologies we may develop or (ii) invent any of the inventions claimed in our patent applications.
The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of patents issuing from those patent applications, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.
Issued patents covering our therapeutic programs and other proprietary technologies we may develop could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.
If we initiated legal proceedings against a third party to enforce a patent covering our therapeutic programs and other proprietary technologies we may develop, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of a patent before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of or amendment to our patents in such a way that they no longer cover our therapeutic programs and other proprietary technologies we may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we or our licensing partners and the patent
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examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our therapeutic programs and other proprietary technologies we may develop. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations and prospects.
If we do not obtain patent term extension for our product candidate, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidate we may develop, one or more of patents issuing from our U.S. patent applications may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984 (Hatch-Waxman Amendments). The Hatch-Waxman Amendments permit a patent extension term (PTE) of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. Similar patent term restoration provisions to compensate for commercialization delay caused by regulatory review are also available in certain foreign jurisdictions, such as in Europe under Supplemental Protection Certificate (SPC).
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patent rights, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our therapeutic programs and other proprietary technologies we may develop. Litigation may be necessary to defend against these and other claims challenging inventorship or our patent rights, trade secrets or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our therapeutic programs and other proprietary technologies we may develop. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for our therapeutic programs and other proprietary technologies we may develop, we also rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information and to maintain our competitive position. With respect to our AOC platform and development programs, we consider trade secrets and know-how to be one of our important sources of intellectual property, including our extensive knowledge of the modulation of RNA processes using oligonucleotides and siRNA, oligonucleotide drug delivery techniques and antibody conjugation. Trade secrets and know-how can be difficult to protect. In particular, the trade secrets and know-how in connection with our AOC platform, development programs and other proprietary technology we may develop may over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology and the movement of personnel with scientific positions in academic and industry.
We seek to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers,
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consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.
We may be subject to claims that third parties have an ownership interest in our trade secrets. For example, we may have disputes arise from conflicting obligations of our employees, consultants or others who are involved in developing our product candidate. Litigation may be necessary to defend against these and other claims challenging ownership of our trade secrets. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable trade secret rights, such as exclusive ownership of, or right to use, trade secrets that are important to our therapeutic programs and other proprietary technologies we may develop. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees.
We may not be successful in obtaining necessary rights to any product candidate we may develop through acquisitions and in-licenses.
We currently solely own intellectual property rights covering our therapeutic programs. Other pharmaceutical companies and academic institutions may also have filed or are planning to file patent applications potentially relevant to our business. In order to avoid infringing these third-party patents, we may find it necessary or prudent to obtain licenses to such patents from such third-party intellectual property holders. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes or other intellectual property rights from third parties that we identify as necessary for our therapeutic programs and other proprietary technologies we may develop. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Some of our employees, consultants and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other
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proprietary information, of any such individuals current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations and prospects.
Third-party claims of intellectual property infringement, misappropriation or other violations against us or our collaborators may prevent or delay the development and commercialization of our therapeutic programs and other proprietary technologies we may develop.
Our commercial success depends in part on our ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. As discussed above, recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have also been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patents in the future.
Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are commercializing or plan to commercialize our therapeutic programs and in which we are developing other proprietary technologies. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our therapeutic programs and commercializing activities may give rise to claims of infringement of the patent rights of others. We cannot assure you that our therapeutic programs and other proprietary technologies we may develop will not infringe existing or future patents owned by third parties. We may not be aware of patents that have already been issued and that a third party, for example, a competitor in the fields in which we are developing our therapeutic programs, might assert as infringed by us. It is also possible that patents owned by third parties of which we are aware, but which we do not believe we infringe or that we believe we have valid defenses to any claims of patent infringement, could be found to be infringed by us. It is not unusual that corresponding patents issued in different countries have different scopes of coverage, such that in one country a third-party patent does not pose a material risk, but in another country, the corresponding third-party patent may pose a material risk to our planned products. As such, we monitor third-party patents in the relevant pharmaceutical markets. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that we may infringe.
In the event that any third party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by us. In this case, the holders of such patents may be able to
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block our ability to commercialize the infringing products or technologies unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize the infringing products or technologies or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business.
Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing the infringing products or technologies. In addition, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties and/or redesign our infringing products or technologies, which may be impossible or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our product candidate or technologies, which could harm our business significantly. Further, we cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms. In the event that we could not obtain a license, we may be unable to further develop our product candidate and commercialize our product, if approved, which could harm our business significantly. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.
Engaging in litigation defending against third parties alleging infringement of patent and other intellectual property rights is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.
We may in the future pursue invalidity proceedings with respect to third-party patents. The outcome following legal assertions of invalidity is unpredictable. Even if resolved in our favor, these legal proceedings may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such proceedings adequately. Some of these third parties may be able to sustain the costs of such proceedings more effectively than we can because of their greater financial resources. If we do not prevail in the patent proceedings the third parties may assert a claim of patent infringement directed at our product candidates.
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We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time consuming and unsuccessful.
Third parties, such as a competitor, may infringe our patent rights. In an infringement proceeding, a court may decide that a patent owned by us is invalid or unenforceable or may refuse to stop the other party from using the invention at issue on the grounds that the patent does not cover the technology in question. In addition, our patent rights may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time consuming. An adverse result in any litigation proceeding could put our patent rights at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, which may not survive such proceedings. Moreover, any name we have proposed to use with our product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA or an equivalent administrative body in a foreign jurisdiction objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark.
We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there
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could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, domain name or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
● | others may be able to make products that are similar to our product candidate or utilize similar technology but that are not covered by the claims of the patents that we license or may own; |
● | we might not have been the first to make the inventions covered by our current or future patent applications; |
● | we might not have been the first to file patent applications covering our inventions; |
● | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
● | it is possible that our current or future patent applications will not lead to issued patents; |
● | any patent issuing from our current or future patent applications may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; |
● | our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
● | we may not develop additional proprietary technologies that are patentable; |
● | the patents of others may harm our business; and |
● | we may choose not to file for patent protection in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such intellectual property. |
We partially depend on intellectual property licensed from third parties, and our licensors may not always act in our best interest. If we fail to comply with our obligations under our intellectual property licenses, if the licenses are terminated or if disputes regarding these licenses arise, we could lose significant rights that are important to our business.
We are dependent, in part, on patents, know-how and proprietary technology licensed from others. Our licenses to such patents, know-how and proprietary technology may not provide exclusive rights in all relevant fields of use and in all territories in which we may wish to develop or commercialize our products in the future. The agreements under which we license patents, know-how and proprietary technology from others are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
For example, we are a party to an exclusive option agreement to obtain an exclusive worldwide license with the University of Alberta, pursuant to which we in-license key patent applications for our Exon 51 skipping AOC for DMD and future product candidates. This agreement imposes various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate our license, in which event we would not be able to develop or market our Exon 51 skipping AOC for DMD or any other technology or
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product candidates covered by the intellectual property licensed under these agreements. In addition, we may need to obtain additional licenses from our existing licensors and others to advance our research or allow commercialization of product candidates we may develop. It is possible that we may be unable to obtain any additional licenses at a reasonable cost or on reasonable terms, if at all. In either event, we may be required to expend significant time and resources to redesign our technology, product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected technology or product candidates.
If we or our licensors fail to adequately protect our licensed intellectual property, our ability to commercialize product candidates could suffer. We do not have complete control over the maintenance, prosecution and litigation of our in-licensed patents and patent applications and may have limited control over future intellectual property that may be in-licensed. For example, we cannot be certain that activities such as the maintenance and prosecution by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. It is possible that our licensors infringement proceedings or defense activities may be less vigorous than had we conducted them ourselves, or may not be conducted in accordance with our best interests.
In addition, the resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant patents, know-how and proprietary technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Disputes that may arise between us and our licensors regarding intellectual property subject to a license agreement could include disputes regarding:
● | the scope of rights granted under the license agreement and other interpretation-related issues; |
● | whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; |
● | our right to sublicense patent and other rights to third parties under collaborative development relationships; |
● | our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates and what activities satisfy those diligence obligations; and |
● | the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us. |
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected technology or product candidates. As a result, any termination of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize our AOC platform, or AOC products, or we could lose other significant rights, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
For example, our agreements with certain of our third-party research partners provide that improvements developed in the course of our relationship may be owned solely by either us or our third-party research partner, or jointly between us and the third party. If we determine that rights to such improvements owned solely by a research partner or other third party with whom we collaborate are necessary to commercialize our product candidates or maintain our competitive advantage, we may need to obtain a license from such third party in order to use the improvements and continue
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developing, manufacturing or marketing our product candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing our product candidates or allow our competitors or others the chance to access technology that is important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to enforce such intellectual property against third parties, and such cooperation may not be provided to us.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.
The growth of our business may depend in part on our ability to acquire, in-license or use third-party proprietary rights. For example, our product candidates may require specific formulations to work effectively and efficiently, we may develop product candidates containing our compounds and pre-existing pharmaceutical compounds, or we may be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic test or tests with our product candidates, any of which could require us to obtain rights to use intellectual property held by third parties. In addition, with respect to any patents we may co-own with third parties, we may require licenses to such co-owners interest to such patents. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary or important to our business operations. In addition, we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. Were that to happen, we may need to cease use of the compositions or methods covered by those third-party intellectual property rights, and may need to seek to develop alternative approaches that do not infringe on those intellectual property rights, which may entail additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, which means that our competitors may also receive access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology.
Additionally, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the institutions rights in technology resulting from the collaboration. Even if we hold such an option, we may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established or have greater resources than we do may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. There can be no assurance that we will be able to successfully complete these types of negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to develop or market. If we are unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of certain programs and our business financial condition, results of operations and prospects could suffer.
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We, our collaborators and our service providers may be subject to a variety of privacy and data security laws and contractual obligations, which could increase compliance costs and our failure to comply with them could subject us to potentially significant fines or penalties and otherwise harm our business.
We maintain a large quantity of sensitive information, including confidential business and patient health information in connection with our preclinical studies, and are subject to laws and regulations governing the privacy and security of such information. The global data protection landscape is rapidly evolving, and we may be affected by or subject to new, amended or existing laws and regulations in the future, including as our operations continue to expand or if we operate in foreign jurisdictions. These laws and regulations may be subject to differing interpretations, which adds to the complexity of processing personal data. Guidance on implementation and compliance practices are often updated or otherwise revised.
In the United States, there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including federal and state health information privacy laws, federal and state security breach notification laws and federal and state consumer protection laws. Each of these laws is subject to varying interpretations and constantly evolving. By way of example, HIPAA imposes privacy and security requirements and breach reporting obligations with respect to individually identifiable health information upon covered entities (health plans, health care clearinghouses and certain health care providers), and their respective business associates, individuals or entities that create, received, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HIPAA mandates the reporting of certain breaches of health information to the U.S. Department of Health and Human Services (HHS), affected individuals and if the breach is large enough, the media. Entities that are found to be in violation of HIPAA as the result of a breach of unsecured protected health information, a complaint about privacy practices or an audit by HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. Even when HIPAA does not apply, according to the FTC failing to take appropriate steps to keep consumers personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act (the FTCA), 15 U.S.C § 45(a). The FTC expects a companys data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards.
In addition, certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. By way of example, the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020, gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business.
In the European Union, in May 2018, a new privacy regime, the General Data Protection Regulation, the GDPR, took effect in the European Economic Area, the EEA. The GDPR governs the collection, use, disclosure, transfer or other processing of personal data of European persons. Among
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other things, the GDPR imposes new requirements regarding the security of personal data and notification of data processing obligations to the competent national data processing authorities, changes the lawful bases on which personal data can be processed, expands the definition of personal data and requires changes to informed consent practices, as well as more detailed notices for clinical trial subjects and investigators. In addition, the GDPR increases the scrutiny of transfers of personal data from clinical trial sites located in the EEA to the United States and other jurisdictions that the European Commission does not recognize as having adequate data protection laws, and imposes substantial fines for breaches and violations (up to the greater of 20 million or 4% of our consolidated annual worldwide gross revenue). The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. Moreover, the United Kingdom leaving the EU could also lead to further legislative and regulatory changes. It remains unclear how the United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfer to the United Kingdom from the EU will be regulated, especially following the United Kingdoms departure from the EU on January 31, 2020. However, the United Kingdom has transposed the GDPR into domestic law with the Data Protection Act 2018, which remains in force following the United Kingdoms departure from the EU. Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations.
Our use of open source software could impose limitations on our ability to commercialize our product candidates.
Our use of open source software could impose limitations on our ability to commercialize our product candidates. As a result, as we seek to use our platform in connection with commercially available products, we may be required to license that software under different license terms, which may not be possible on commercially reasonable terms, if at all. If we are unable to license software components on terms that permit its use for commercial purposes, we may be required to replace those software components, which could result in delays, additional cost and additional regulatory approvals.
Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the software code. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software to the public. This could allow our competitors to create similar products with lower development effort and time, and ultimately could result in a loss of product sales for us. Although we monitor our use of open source software, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that those licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our product candidates. We could be required to seek licenses from third parties in order to continue offering our product candidates, to re-engineer our product candidates or to discontinue the sale of our product candidates in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely affect our business, financial condition, results of operations and prospects.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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Risks Related to Our Common Stock and This Offering
There has been no public market for our common stock and an active, liquid and orderly market for our common stock may not develop, and you may not be able to resell your common stock at or above the public offering price.
Prior to this offering, there has been no public market for our common stock. Although we expect to list our common stock on the Nasdaq Global Market (Nasdaq), an active trading market for our common stock may never develop or be sustained following this offering. We and the representatives of the underwriters will determine the initial public offering price of our common stock through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, an active trading market may not develop following the consummation of this offering or, if it is developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses or technologies using our shares as consideration, which, in turn, could materially adversely affect our business.
The trading price of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses.
Our stock price is likely to be volatile. The stock market in general and the market for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by those factors discussed in this Risk Factors section and many others, including:
● | results of our preclinical studies and clinical trials, and the results of trials of our competitors or those of other companies in our market sector; |
● | our ability to enroll subjects in our future clinical trials; |
● | regulatory approval of our product candidates, or limitations to specific label indications or patient populations for its use, or changes or delays in the regulatory review process; |
● | regulatory developments in the United States and foreign countries; |
● | changes in the structure of healthcare payment systems; |
● | the success or failure of our efforts to develop, acquire or license additional product candidates; |
● | innovations, clinical trial results, product approvals and other developments regarding our competitors; |
● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
● | manufacturing, supply or distribution delays or shortages; |
● | any changes to our relationship with any manufacturers, suppliers, collaborators or other strategic partners; |
● | achievement of expected product sales and profitability; |
● | variations in our financial results or those of companies that are perceived to be similar to us; |
● | market conditions in the biopharmaceutical sector and issuance of securities analysts reports or recommendations; |
● | trading volume of our common stock; |
● | an inability to obtain additional funding; |
● | sales of our stock by insiders and stockholders; |
● | general economic, industry and market conditions other events or factors, many of which are beyond our control; |
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● | additions or departures of key personnel; and |
● | intellectual property, product liability or other litigation against us. |
In addition, in the past, stockholders have initiated class action lawsuits against biopharmaceutical companies following periods of volatility in the market prices of these companies stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert our managements attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.
We may allocate the net proceeds from this offering in ways that you and other stockholders may not approve.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in Use of Proceeds. 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, and 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- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected results, which could cause our stock price to decline.
You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase.
The initial public offering price of our common stock is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock immediately after the completion of this offering. Purchasers of common stock in this offering will experience immediate dilution of approximately $ per share, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus. In the past, we issued options to acquire common stock at prices significantly below the initial public offering price. To the extent these outstanding options are ultimately exercised, investors purchasing common stock in this offering will sustain further dilution. For a further description of the dilution that you will experience immediately after this offering, see Dilution.
After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control or significantly influence all matters submitted to stockholders for approval.
Following the completion of this offering, our executive officers, directors and greater than 5% stockholders, in the aggregate, will own approximately % of our outstanding common stock (assuming no exercise of the underwriters option to purchase additional shares and no exercise of outstanding options). As a result, such persons, acting together, will have the ability to control or significantly influence all matters submitted to our board of directors or stockholders for approval, including the appointment of our management, the election and removal of directors and approval of any significant transaction, as well as our management and business affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would benefit other stockholders.
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We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our common 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, under the terms of our Loan Agreement, we are prohibited from paying any cash dividends without the consent of the lenders and any future debt agreements may preclude us from paying dividends. Any return to stockholders will therefore be limited to the appreciation of their stock. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
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.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.
Based on shares of common stock outstanding as of December 31, 2019, upon the closing of this offering, we will have outstanding a total of shares of common stock after this offering, assuming no exercise of the underwriters option to purchase additional shares 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 option to purchase additional shares, will be freely tradable, without restriction, in the public market immediately following this offering, unless they are purchased by one of our affiliates.
Our directors and executive officers and holders of substantially all of our outstanding securities have entered into lock-up agreements with the underwriters pursuant to which they may not, with limited exceptions, for a period of 180 days from the date of this prospectus, offer, sell or otherwise transfer or dispose of any of our securities, without the prior written consent of Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC. The underwriters may permit our officers, directors and other securityholders who are subject to the lock-up agreements to sell shares prior to the expiration of the lock-up agreements at any time in their sole discretion. See Underwriting. Sales of these shares, or perceptions that they will be sold, could cause the trading price of our common stock to decline. 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.
In addition, as of December 31, 2019, up to 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 outstanding common stock, or approximately % of our total outstanding common stock as of December 31, 2019, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting and the 180-day lock-up agreements described above. 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
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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.
We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of this offering. 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 $1.07 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. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
● | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced Managements Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting pursuant to Sarbanes-Oxley; |
● | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, unless the SEC determines the new rules are necessary for protecting the public; |
● | reduced disclosure obligations regarding executive compensation; and |
● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year.
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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 Exchange Act, which will require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, Sarbanes-Oxley, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of Sarbanes-Oxley, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory say on pay voting requirements that will apply to us when we cease to be an emerging growth company. 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.
We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
If securities or industry analysts do not publish research or reports or publish unfavorable research or reports 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, our business, our market or our competitors. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.
If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.
Pursuant to Section 404 of Sarbanes-Oxley, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2021. When we lose our status as an emerging growth company and reach an accelerated filer threshold, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act,
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we will need to upgrade our information technology systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.
Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the consummation of this offering will contain provisions that could significantly reduce the value of our shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents will include the following:
● | a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; |
● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
● | the exclusive right of our board of directors, unless the board of directors grants such right to the stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
● | the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; |
● | the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; |
● | the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; |
● | the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; |
● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; |
● | an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; |
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● | the requirement that a special meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and |
● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or otherwise attempting to obtain control of us. |
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided, that, this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, our amended and restated certificate of incorporation will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
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 biotechnology and biopharmaceutical 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 our managements attention and resources, which could harm our business.
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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, research and development plans, the anticipated timing, costs, design and conduct of our ongoing and planned preclinical studies and planned clinical trials for our product candidates, our plans to use our AOC product platform to expand our pipeline of product candidates and develop marketable products, the timing and likelihood of regulatory filings and approvals for our product candidates, our ability to commercialize our product candidates, if approved, the pricing and reimbursement of our product candidates, if approved, the potential to develop future product candidates, the potential benefits of strategic collaborations and our intent to enter into any strategic arrangements, the timing and likelihood of success, plans and objectives of management for future operations, and future results of anticipated product development efforts, 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 in 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 undertake no obligation 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. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See Where You Can Find More Information.
In addition, statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to rely unduly upon them.
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We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from independent market research, industry and general publications and surveys, governmental agencies and publicly available information in addition to research, surveys and studies conducted by third parties. Internal estimates are derived from publicly available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires. In addition, while we believe the industry, market and competitive position data included in this prospectus is reliable and based on reasonable assumptions, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed in Risk Factors. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties or by us.
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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, which is the midpoint of the price range set forth 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, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, 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 the estimated underwriting discounts and commissions. Each increase (decrease) of 1.0 million shares in the number of shares offered by us 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 the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:
● | approximately $ million to advance the development of AOC 1001 for DM1 through the completion of our planned Phase 1/2 clinical trial; |
● | approximately $ million to advance the development of our AOC for muscle atrophy through ; |
● | approximately $ million to advance the development of our AOC for DMD through ; and |
● | the remainder for other development work associated with advancing our AOC platform and for working capital and general corporate purposes. |
We may also use a portion of the remaining net proceeds and our existing cash and cash equivalents to in-license, acquire or invest in complementary businesses, technologies, products or assets. However, we have no current commitments or obligations to do so.
We believe, based on our current operating plan, that the net proceeds from this offering together with our existing cash and cash equivalents, will be sufficient to fund our operations for at least the next months from the date of this prospectus. However, our expected use of proceeds from this offering described above represents our current intentions based on our present plans and business condition. We cannot predict with certainty all of the particular uses of the net proceeds from this offering or the actual amounts that we will spend on the uses set forth above. The net proceeds from this offering, together with our cash and cash equivalents, will not be sufficient for us to fund all of our product candidates through regulatory approval, and we will need to raise additional capital to complete the development and commercialization of each of our product candidates.
The amounts and timing of our actual expenditures will depend on numerous factors, including the time and cost necessary to conduct our ongoing and planned preclinical studies and planned clinical
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trials, the results of such studies and trials, and other factors described in Risk Factors, as well as the amount of cash used in our operations and any unforeseen cash needs. Therefore, our actual expenditures may differ materially from the estimates 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, investment grade interest-bearing instruments.
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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 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, under the terms of our Loan Agreement, we are prohibited from paying any cash dividends without the consent of SVB.
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The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2019:
● | on an actual basis; |
● | on a pro forma basis to reflect (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and our receipt of approximately $2.3 million in gross proceeds therefrom, (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock and the related reclassification of the carrying value of the convertible preferred stock and preferred stock warrant liabilities to permanent equity immediately prior to the closing of this offering, and (iii) the filing and effectiveness 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 our common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth 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 as adjusted information below is illustrative only, and our cash and cash equivalents and 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 audited financial statements and related notes included elsewhere in this prospectus and in Managements Discussion and Analysis of Financial Condition and Results of Operations and other financial information contained in this prospectus.
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As of December 31, 2019 | ||||||||||||
(in thousands, except share and par value data) | Actual | Pro Forma | Pro Forma As Adjusted(1) |
|||||||||
(unaudited) | (unaudited) | |||||||||||
Cash and cash equivalents |
$ | 94,578 | $ | 96,878 | $ | |||||||
|
|
|
|
|
|
|||||||
Convertible preferred stock, $0.0001 par value; 38,054,628 shares authorized, 37,267,331 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted |
$ | 134,720 | $ | | ||||||||
Preferred stock warrant liabilities |
45 | | ||||||||||
Long-term debt |
4,544 | 4,544 | ||||||||||
Stockholders equity (deficit): |
||||||||||||
Preferred stock, $0.0001 par value; no shares authorized, issued and outstanding, actual; shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted |
| | ||||||||||
Common stock, $0.0001 par value; 52,042,016 shares authorized, 6,304,898 shares issued and outstanding, including 410,779 shares subject to forfeiture or a right of repurchase, actual; shares authorized, 44,109,461 shares issued and outstanding, including 410,779 shares subject to forfeiture or a right of repurchase, pro forma; shares authorized, shares issued and shares outstanding, including 410,779 shares subject to forfeiture or a right of repurchase, pro forma as adjusted |
1 | 4 | ||||||||||
Additional paid-in capital |
(43,173 | ) | 93,889 | |||||||||
Accumulated deficit |
(22,185 | ) | (22,185 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total stockholders equity (deficit) |
(65,357 | ) | 71,708 | |||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 73,952 | $ | 76,252 | $ | |||||||
|
|
|
|
|
|
(1) | Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of our cash and cash equivalents, additional paid-in capital, 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 the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price of $ per share would increase (decrease) the pro forma as adjusted amount of each of our cash and cash equivalents, additional paid-in capital, total stockholders equity (deficit) and total capitalization by approximately $ , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
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The number of shares of our common stock to be outstanding after this offering set forth above is based on 44,109,461 shares of our common stock outstanding as of December 31, 2019, including 410,779 shares subject to forfeiture or our right of repurchase, after giving effect to (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock immediately prior to the closing of this offering, and excludes:
● | 3,515,833 shares of common stock issuable upon the exercise of outstanding stock options as of December 31, 2019, at a weighted-average exercise price of $0.51 per share; |
● | 1,892,313 shares of common stock issuable upon the exercise of stock options granted after December 31, 2019, at a weighted-average exercise price of $0.59 per share; |
● | 36,392 shares of common stock issuable upon the exercise of outstanding warrants as of December 31, 2019, at a weighted-average exercise price of $1.16 per share; |
● | shares of common stock reserved for future issuance under our the 2020 Plan, which will become effective in connection with this offering (which number includes shares remaining available for issuance under our 2013 Plan as of December 31, 2019 (which shares will become available for issuance under the 2020 Plan upon its effectiveness), but does not include any potential evergreen increases pursuant to the terms of the 2020 Plan); and |
● | shares of common stock reserved for future issuance under our ESPP, which will become effective in connection with this offering (which number does not include any potential evergreen increases pursuant to the terms of the ESPP). |
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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, 2019, our historical net tangible book value (deficit) was $(65.4) million, or $(10.37) per share of our common stock, based on 6,304,898 shares of common stock issued and outstanding as of such date, including 410,779 shares subject to forfeiture or our right of repurchase as of such date. 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, 2019.
On a pro forma basis, after giving effect to (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and our receipt of approximately $2.3 million in gross proceeds therefrom and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock and the related reclassification of the carrying value of the convertible preferred stock and preferred stock warrant liabilities to permanent equity immediately prior to the closing of this offering, our pro forma net tangible book value as of December 31, 2019 would have been approximately $71.7 million, or approximately $1.63 per share of our common stock.
After giving further effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth 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, 2019 would have been approximately $ million, or approximately $ per share. This amount represents an immediate increase in pro forma net tangible book value of approximately $ 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, 2019 |
$ | (10.37 | ) | |||||
Pro forma increase in historical net tangible book value per share as of December 31, 2019 attributable to the pro forma adjustments described above |
12.00 | |||||||
|
|
|||||||
Pro forma net tangible book value per share as of December 31, 2019 |
$ | 1.63 | ||||||
Increase in pro forma net tangible book value per share attributable to new investors participating in this offering |
||||||||
|
|
|||||||
Pro forma as adjusted net tangible book value per share after this offering |
||||||||
|
|
|||||||
Dilution per share to new investors participating in this offering |
$ | |||||||
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase
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(decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $ , and dilution in pro forma as adjusted 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 of $ per share remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
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 approximately $ per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be approximately $ 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, which is the midpoint of the price range set forth on the cover page of this prospectus.
The following table summarizes on the pro forma as adjusted basis described above, as of December 31, 2019, 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 which is calculations below are based on an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth 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 |
Weighted- Average Price Per Share |
||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||
Existing stockholders before this offering |
% | $ | % | $ | ||||||||||||||
New investors participating in this offering |
$ | |||||||||||||||||
|
|
|
|
|
|
|
||||||||||||
Total |
100 | % | $ | 100 | % | |||||||||||||
|
|
|
|
|
|
|
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 before this offering 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 participating in this offering will increase to , or approximately % of the total number of shares of our common stock outstanding after this offering. |
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The foregoing tables and calculations on a pro forma and pro forma as adjusted basis are based on 44,109,461 shares of our common stock outstanding as of December 31, 2019, including 410,779 shares subject to forfeiture or our right of repurchase, after giving effect to (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock immediately prior to the closing of this offering, and exclude:
● | 3,515,833 shares of common stock issuable upon the exercise of outstanding stock options as of December 31, 2019, at a weighted-average exercise price of $0.51 per share; |
● | 1,892,313 shares of common stock issuable upon the exercise of stock options granted after December 31, 2019, at a weighted-average exercise price of $0.59 per share; |
● | 36,392 shares of common stock issuable upon the exercise of outstanding warrants as of December 31, 2019, at a weighted-average exercise price of $1.16 per share; |
● | shares of common stock reserved for future issuance under our the 2020 Plan, which will become effective in connection with this offering (which number includes shares remaining available for issuance under our 2013 Plan as of December 31, 2019 (which shares will become available for issuance under the 2020 Plan upon its effectiveness), but does not include any potential evergreen increases pursuant to the terms of the 2020 Plan); and |
● | shares of common stock reserved for future issuance under our ESPP, which will become effective in connection with this offering (which number does not include any potential evergreen increases pursuant to the terms of the ESPP). |
To the extent any outstanding options, warrants or other rights are exercised, or we issue additional equity or convertible securities in the future, there will be further dilution to new investors.
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The following tables set forth our selected historical financial data as of, and for the periods ended on, the dates indicated. We have derived the selected statements of operations data for the years ended December 31, 2018 and 2019 and the selected balance sheet data as of December 31, 2018 and 2019 from our audited financial statements included elsewhere in this prospectus. You should read these data together with our audited financial statements and related notes included elsewhere in this prospectus and in 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, |
||||||||
(in thousands, except share and per share data) | 2018 | 2019 | ||||||
Statements of Operations Data: |
||||||||
Revenue: |
||||||||
Collaboration and contract research |
$ | 379 | $ | 2,319 | ||||
|
|
|
|
|||||
Total revenue |
379 | 2,319 | ||||||
Operating expenses: |
||||||||
Research and development |
8,436 | 14,539 | ||||||
General and administrative |
2,441 | 5,112 | ||||||
|
|
|
|
|||||
Total operating expenses |
10,877 | 19,651 | ||||||
|
|
|
|
|||||
Loss from operations |
(10,498 | ) | (17,332 | ) | ||||
Interest and other expense: |
||||||||
Interest expense |
(718 | ) | (7,387 | ) | ||||
Change in fair value of warrant liabilities |
| (15 | ) | |||||
|
|
|
|
|||||
Total interest and other expense |
(718 | ) | (7,402 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (11,216 | ) | $ | (24,734 | ) | ||
|
|
|
|
|||||
Net loss per share/unit, basic and diluted(1) |
$ | (2.15 | ) | $ | (4.32 | ) | ||
|
|
|
|
|||||
Weighted-average shares/units outstanding, basic and diluted(1) |
5,224,812 | 5,724,115 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted (unaudited)(1) |
$ | (0.68 | ) | |||||
|
|
|||||||
Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(1) |
26,224,719 | |||||||
|
|
(1) | See Note 2 to our audited financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical net loss per share/unit, basic and diluted, and pro forma net loss per share, basic and diluted, and the number of shares used in the computation of the per share amounts. |
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As of December 31, |
||||||||
(in thousands) | 2018 | 2019 | ||||||
Balance Sheet Data: |
||||||||
Cash and cash equivalents |
$ | 3,090 | $ | 94,578 | ||||
Working capital (deficit)(1) |
(1,374 | ) | 85,440 | |||||
Total assets |
3,982 | 96,907 | ||||||
Convertible notes (including accrued interest) |
3,184 | | ||||||
Long-term debt, including current portion |
7,140 | 4,544 | ||||||
Convertible preferred units/stock |
32,693 | 134,720 | ||||||
Predecessors/accumulated deficit |
(41,555 | ) | (22,185 | ) | ||||
Total members/stockholders equity (deficit) |
(41,129 | ) | (65,357 | ) |
(1) | We define working capital (deficit) as total current assets less total current liabilities. See our audited financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis are set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, and includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Risk Factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are pioneering a new class of oligonucleotide-based therapies called AOCs designed to overcome the current limitations of oligonucleotide therapies in order to treat a wide range of serious diseases. We utilize our proprietary AOC platform to design, engineer and develop therapeutics that combine the tissue selectivity of mAbs and the precision of oligonucleotide therapies in order to access previously undruggable tissue and cell types and more effectively target underlying genetic drivers of diseases. We are initially focused on muscle diseases to demonstrate the capabilities of our AOCs, and our muscle franchise consists of five programs. Our lead product candidate, AOC 1001, is designed to treat DM1, a rare monogenic muscle disease. We expect to submit an IND for AOC 1001 in 2021 and plan to initiate a Phase 1/2 clinical trial by the end of the same year. We also intend to advance AOC product candidates in our four other muscle programs focused on the treatment of muscle atrophy, DMD, FSHD and Pompe disease. In addition to our muscle franchise, we have development efforts focused on immune and other cell types.
Since our inception in 2012, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our proprietary AOC platform, identifying potential product candidates, establishing our intellectual property portfolio and conducting research and preclinical studies, and providing other general and administrative support for these operations. We have not generated any revenue from product sales and, as of December 31, 2019, we have raised a total of $163.1 million to fund our operations, comprised of aggregate gross proceeds of $129.3 million from the sale and issuance of convertible preferred units and stock and convertible notes, $26.8 million from funding under collaboration and research services agreements, and $7.0 million from loans under our credit facility with SVB. As of December 31, 2019, we had cash and cash equivalents of $94.6 million. Subsequent to December 31, 2019, we received an additional $2.3 million in connection with the sale of shares of our Series C convertible preferred stock.
We have incurred operating losses in each year since inception. Our net losses were $11.2 million and $24.7 million for the years ended December 31, 2018 and 2019, respectively. As of December 31, 2019, we had an accumulated deficit of $22.2 million. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned preclinical studies and clinical trials, continue our research and development activities, utilize third parties to manufacture our product candidates and related raw materials, hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our preclinical studies and clinical trials and our expenditures on other research and development activities, as well as the generation of any collaboration and services revenue.
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Based upon our current operating plans, we believe that the estimated net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations for at least the next months from the date of this offering. While we may generate revenue under our current and/or future collaboration agreements, we do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and may never occur. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Agreement and Plan of Conversion
In April 2019, we entered into an Agreement and Plan of Conversion, pursuant to which we converted from Avidity Biosciences LLC, a Delaware limited liability company (Avidity LLC), into Avidity Biosciences, Inc., a Delaware corporation (Avidity Inc.). All of the membership interests of Avidity LLC were converted into securities of Avidity Inc., as follows: (i) each outstanding common unit of Avidity LLC converted into one share of Avidity Inc.s common stock; (ii) each outstanding Series A convertible preferred unit of Avidity LLC converted into one share of Avidity Inc.s Series A convertible preferred stock; and (iii) each outstanding Series B convertible preferred unit of Avidity LLC converted into one share of Avidity Inc.s Series B convertible preferred stock. Outstanding convertible notes, warrants and stock awards under Avidity LLCs employee benefit and incentive compensation plans continued on the same terms and conditions and became binding upon Avidity Inc.
Research Collaboration and License Agreement with Lilly
In April 2019, we entered into the Lilly Agreement with Lilly for the discovery, development and commercialization of AOC products in immunology and other select indications on a worldwide basis. Under the Lilly Agreement, we and Lilly will collaborate on preclinical research and discovery activities for such products, with Lilly being responsible for funding the cost of such activities by both parties. Lilly will also lead the clinical development, regulatory approval and commercialization of all such products, at its sole cost. We granted Lilly an exclusive, worldwide, royalty-bearing license, with the right to sublicense, under our technology to research, develop, manufacture, and sell products containing AOCs that are directed to up to six mRNA targets. We retain the right to use our technology to perform our obligations under the agreement and for all purposes not granted to Lilly.
Lilly paid us an upfront license fee of $20.0 million in 2019, and we are eligible to receive up to an aggregate of $405.0 million per target in development, regulatory and commercialization milestone payments. We are eligible to receive a tiered royalty ranging from the mid-single to low-double digits from Lilly on worldwide annual net sales of licensed products, subject to specified and capped reductions for the market entry of biosimilar products, loss of patent coverage of licensed products and for payments owed to third parties for additional rights necessary to commercialize licensed products in the territory.
Concurrently with the Lilly Agreement, we issued a convertible promissory note to Lilly (the Lilly Note) and received cash proceeds of $15.0 million in 2019. The Lilly Note accrued simple interest of 8.0% per annum and, if not converted, would have matured in October 2020. In connection with the sale of our Series C convertible preferred stock in November 2019, all outstanding principal and
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interest accrued under the Lilly Note converted into 4,576,342 shares of our Series C convertible preferred stock, at a conversion price equal to 80% of the per share cash price paid by the investors in the Series C convertible preferred stock financing.
Components of Results of Operations
Revenue
Our revenue to date has been derived from payments received under the Lilly Agreement and payments for research services under other research services agreements. Our services under these other research services agreements were substantially completed in early 2018, and therefore no related revenue was recognized in 2019 or is expected in future periods. For the foreseeable future, we may generate revenue from reimbursements of services under the Lilly Agreement, as well as a combination of upfront payments and milestone payments under our current and/or future collaboration agreements. We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and regulatory approval, if ever. We expect that any revenue we generate, if at all, will fluctuate from quarter-to-quarter as a result of the timing and amount of payments relating to such services and milestones and the extent to which any of our products are approved and successfully commercialized. If we fail to complete preclinical and clinical development of product candidates or obtain regulatory approval for them, our ability to generate future revenues, and our results of operations and financial position would be adversely affected.
Operating Expenses
Research and Development
Research and development expenses consist of external and internal costs associated with our research and development activities, including our discovery and research efforts, and the preclinical and clinical development of our product candidates. Our research and development expenses include:
● | external costs, including expenses incurred under arrangements with third parties, such as CROs, contract manufacturers, consultants and our scientific advisors; and |
● | internal costs, including: |
● | employee-related expenses, including salaries, benefits, and stock-based compensation; |
● | the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study materials; and |
● | facilities, information technology and depreciation, which include direct and allocated expenses for rent and maintenance of facilities and depreciation of leasehold improvements and equipment. |
Research and development costs, including third-party costs reimbursed under our collaboration with Lilly, are expensed as incurred, with reimbursements of such amounts being recognized as revenue. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.
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At any one time, we are working on multiple programs. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery program and are typically deployed across multiple programs. As such, we do not track internal costs on a specific program basis. The following table summarizes our external costs and internal costs for the years ended December 31, 2018 and 2019 (in thousands):
Year Ended December 31, |
||||||||
2018 | 2019 | |||||||
External costs |
$ | 1,448 | $ | 6,634 | ||||
Internal costs: |
||||||||
Salaries and benefits |
3,582 | 5,011 | ||||||
Facilities and other unallocated costs |
3,406 | 2,894 | ||||||
|
|
|
|
|||||
Total internal costs |
6,988 | 7,905 | ||||||
|
|
|
|
|||||
Total research and development expenses |
$ | 8,436 | $ | 14,539 | ||||
|
|
|
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We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing research and development activities, advance our preclinical research programs toward clinical development, including conducting IND-enabling studies, and conduct clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for any of our product candidates.
The timelines and costs with research and development activities are uncertain can vary significantly for each product candidate and development program and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to preclinical and clinical results, regulatory developments, ongoing assessments as to each programs commercial potential, and our ability to maintain or enter into new collaborations, to the extent we determine the resources or expertise of a collaborator would be beneficial for a given program. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which development programs may be subject to 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.
Our development costs may vary significantly based on factors such as:
● | the number and scope of preclinical and IND-enabling studies; |
● | per patient trial costs; |
● | the number of trials required for approval; |
● | the number of sites included in the trials; |
● | the countries in which the trials are conducted; |
● | the length of time required to enroll eligible patients; |
● | the number of patients that participate in the trials; |
● | the number of doses that patients receive; |
● | the drop-out or discontinuation rates of patients; |
● | potential additional safety monitoring requested by regulatory agencies; |
● | the duration of patient participation in the trials and follow-up; |
● | the cost and timing of manufacturing our product candidates; |
● | the phase of development of our product candidates; and |
● | the efficacy and safety profile of our product candidates. |
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General and Administrative
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for employees in our finance, accounting, legal, business development and support functions. Other general and administrative expenses include allocated facility, information technology and depreciation related costs not otherwise included in research and development expenses and professional fees for auditing, tax, intellectual property and legal services. Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred since recoverability of such expenditures is uncertain.
We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities and increased costs of operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory and tax services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.
Interest and Other Expense
Interest expense
Interest expense consists of cash and non-cash interest expense associated with our financing arrangements, which include borrowings under our Loan Agreement with SVB and convertible notes with certain of our investors.
Other expense
We classify our outstanding warrants to purchase shares of our Series A convertible preferred stock as liabilities on our balance sheets at their estimated fair value since the underlying convertible preferred stock is classified as temporary equity. At the end of each reporting period, changes in the estimated fair value during the period are recorded as a component of interest and other expense.
Results of Operations
Comparison of the Years Ended December 31, 2018 and 2019
The following table summarizes our results of operations for the years ended December 31, 2018 and 2019 (in thousands):
Year Ended December 31, |
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2018 | 2019 | |||||||
Revenue |
$ | 379 | $ | 2,319 | ||||
Research and development expenses |
8,436 | 14,539 | ||||||
General and administrative expenses |
2,441 | 5,112 | ||||||
Interest and other expense |
718 | 7,402 | ||||||
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Net loss |
$ | (11,216 | ) | $ | (24,734 | ) | ||
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Revenue
Revenue was $0.4 million for the year ended December 31, 2018 compared to $2.3 million for the year ended December 31, 2019. Revenue during the year ended December 31, 2019 was derived from the Lilly Agreement, which was entered into in April 2019. Revenue during the year ended December 31, 2018 was derived from the performance of research and development activities pursuant to agreements with other parties, which were substantially completed in early 2018.
Research and Development Expenses
Research and development expenses were $8.4 million for the year ended December 31, 2018 compared to $14.5 million for the year ended December 31, 2019. The increase of $6.1 million was primarily driven by a $4.7 million increase in expenses incurred in connection with research and
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preclinical studies, including manufacturing activities, related to AOC 1001 and our other development programs, as well as a $1.4 million increase in personnel costs.
General and Administrative Expenses
General and administrative expenses were $2.4 million for the year ended December 31, 2018 compared to $5.1 million for the year ended December 31, 2019. The increase of $2.7 million in 2019 was primarily driven by increases of $1.1 million in personnel costs, $0.4 million in professional services, $0.3 million in legal costs incurred in connection with the Lilly Agreement and $0.2 million in intellectual property patent filing costs.
Interest and Other Expense
Interest and other expense was $0.7 million for the year ended December 31, 2018 compared to $7.4 million for the year ended December 31, 2019. The increase of $6.7 million was primarily related to interest expense incurred in 2019 in connection with our outstanding convertible notes issued to certain of our investors, including $5.7 million of noncash interest expense representing the accretion of debt premium and issuance costs, and additional interest in connection with the Loan Agreement.
Liquidity and Capital Resources
Sources of Liquidity
From our inception through December 31, 2019, we have received aggregate gross proceeds of $129.3 million from the sale of convertible preferred units and stock and convertible notes, $26.8 million from research funding under the Lilly Agreement and other research services agreements and $7.0 million from loans under the Loan Agreement.
Subsequent to December 31, 2019, we received an additional $2.3 million in connection with the sale of 537,232 shares of our Series C convertible preferred stock.
Convertible Promissory Notes
In July 2018 and February 2019, we issued convertible promissory notes to certain of our existing investors and received proceeds of $3.0 million and $4.5 million, respectively (the 2018 Notes and 2019 Notes, respectively). The 2018 Notes and 2019 Notes accrued simple interest at a rate of 8% and 10% per annum, respectively, and had a maturity date in December 2020, subject to earlier conversion.
In addition, in April 2019, as described above, in connection with the Lilly Agreement, we issued the Lilly Note and received cash proceeds of $15.0 million.
In November 2019, in connection with our Series C financing transaction, all outstanding amounts of principal and accrued interest from the 2018 Notes, 2019 Notes and Lilly Note, which totaled $23.8 million, were converted into an aggregate of 6,893,036 shares of our Series C convertible preferred stock.
SVB Loan and Security Agreement
In June 2017, we entered into an amendment to our Loan Agreement with SVB, which provided up to $7.0 million in available borrowings in two tranches. In 2017, we drew the first tranche of $5.0 million, of which $4.6 million was used to repay our existing debt obligations to SVB. In August 2018, we drew the second tranche of $2.0 million. Interest accrues on the unpaid principal balance at an adjustable annual rate of the prime rate per the Wall Street Journal plus 0.20%. In addition to our monthly payments of principal and interest, our repayment obligations include a final payment of 6.5% of the original principal advanced which is due upon final maturity of the loan in June 2021. As of December 31, 2019, $4.2 million of principal was outstanding under the Loan Agreement and no amounts remained available for us to borrow thereunder.
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The Loan Agreement is collateralized by substantially all of our assets, excluding intellectual property, which is subject to a negative pledge. The Loan Agreement contains customary affirmative and negative covenants and events of default applicable to us. The affirmative covenants include, among others, covenants requiring us to maintain governmental approvals, deliver certain financial reports, maintain insurance coverage and protect material intellectual property. The negative covenants include, among others, restrictions on us transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying cash dividends or making other distributions, making investments, creating liens, selling assets and making any payment on subordinated debt, in each case subject to certain exceptions.
In connection with execution of the Loan Agreement, we issued SVB a warrant to purchase 16,474 shares of our Series A convertible preferred stock at an exercise price of $2.2615 per share, exercisable at any time following issuance. The preferred stock warrant has a term of ten years. The warrant will become exercisable for an aggregate of 16,474 shares of our common stock upon the completion of this offering at an exercise price of $2.2615 per share. In connection with the First Amendment in June 2017, we issued SVB an additional warrant to purchase 19,918 shares of common stock at an exercise price of $0.25 per share, exercisable at any time following issuance. The common stock warrant has a term of seven years.
Future Capital Requirements
As of December 31, 2019, we had cash and cash equivalents in the amount of $94.6 million. Based upon our current operating plans, we believe that the estimated net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations for at least the next months from the date of this prospectus. 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. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of conducting preclinical studies and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain.
Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
● | the type, number, scope, progress, expansions, results, costs and timing of, discovery, preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future; |
● | the costs and timing of manufacturing for our product candidates and commercial manufacturing if any product candidate is approved; |
● | the costs, timing and outcome of regulatory review of our product candidates; |
● | the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; |
● | the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights; |
● | our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; |
● | the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase; |
● | the timing and amount of the milestone or other payments made to us under the Lilly Agreement Lilly or any future collaboration agreements; |
● | the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved; |
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● | our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; |
● | the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and |
● | costs associated with any products or technologies that we may in-license or acquire. |
We currently have no additional borrowing available under our Loan Agreement with SVB or other committed sources of capital. Until we can generate a sufficient amount of product revenue to finance our cash requirements, if ever, we expect to finance our future cash needs primarily through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. 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 or could 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 expenditures or declaring dividends. If we raise additional funds through other collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates 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 commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table shows a summary of our cash flows for the years ended December 31, 2018 and 2019 (in thousands):
Year Ended December 31, |
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2018 | 2019 | |||||||
Net cash (used in) provided by: |
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Operating activities |
$ | (9,655 | ) | $ | 2,490 | |||
Investing activities |
(49 | ) | (235 | ) | ||||
Financing activities |
5,144 | 89,233 | ||||||
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Net (decrease) increase in cash |
$ | (4,560 | ) | $ | 91,488 | |||
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Operating Activities
Cash provided by operating activities was $2.5 million during the year ended December 31, 2019 as compared to cash used in operating activities of $9.7 million during the year ended December 31, 2018. The increase of $12.1 million was the result of an increase in deferred revenue of $18.9 million, partially offset by a $13.5 million increase in net loss adjusted for increases in non-cash items totaling $7.2 million and a decrease in the net changes in working capital totaling $0.5 million.
Investing Activities
Net cash used in investing activities was $0.2 million during the year ended December 31, 2019 as compared to $49,000 during the year ended December 31, 2018. This change primarily was the result of additional purchases of property and equipment in 2019.
Financing Activities
Net cash provided by financing activities was $89.2 million during the year ended December 31, 2019 as compared to $5.1 million during the year ended December 31, 2018. During 2019, we
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received $92.1 million from the sale of shares of our Series C convertible preferred stock, net of issuance costs, and the issuance of convertible notes. During 2018, we received $3.0 million from the issuance of convertible notes and $2.0 million from a draw under the Loan Agreement.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments at December 31, 2019 (in thousands):
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 Year |
1-3 Years |
3-5 Years |
More than 5 Years |
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Long-term debt obligations, including interest and final payment(1) |
$ | 4,822 | $ | 2,947 | $ | 1,875 | $ | | $ | | ||||||||||
Operating lease obligations(2) |
798 | 393 | 405 | | | |||||||||||||||
Non-cancellable purchase obligations(3) |
6,092 | 5,950 | 142 | | | |||||||||||||||
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Total |
$ | 11,712 | $ | 9,290 | $ | 2,422 | $ | | $ | | ||||||||||
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(1) | We will make principal and interest payments to SVB in accordance with the required payment schedule. |
(2) | Represents monthly payments under our operating lease obligations which relate to our corporate headquarters in San Diego, California. We lease 8,561 square feet of office space under an operating lease that expires in December 2021. |
(3) | Represents purchase commitments with two contract manufacturing organizations for the manufacture of materials used in our preclinical and planned clinical trials. |
We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements as defined under rules and regulations of the SEC.
Critical Accounting Polices and Estimates
This management discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities revenue and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates.
While our significant accounting policies are described in more detail in Note 2 to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are the most critical to understanding and evaluating our historical and future performance.
Revenue Recognition
To date, all of our revenue has been derived from our collaboration and research agreements entered into with Lilly and other various parties. The terms of these arrangements include payments to
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us for the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for research and development services provided by us or for manufacturing supply services we may provide through our contract manufacturers; and royalties on net sales of licensed products.
Effective January 1, 2019, we began recognizing revenue in accordance with the provisions of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). The adoption of Topic 606 using the modified retrospective approach did not have a material impact on our financial position, results of operations or cash flows as we did not have any revenue-generating arrangements in effect at January 1, 2019. In accordance with Topic 606, we perform the following five steps in determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of these agreements: (i) identification of the contract(s) with a customer; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, we satisfy each performance obligation.
If an agreement includes a license to our intellectual property and that license is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
With respect to our assessment of the Lilly Agreement, we identified multiple promises to deliver goods and services, which include at inception of the agreement: (1) a license to technology and patents, information and know-how; and (2) collaboration, including research services, technical and regulatory support provided by the Company. The Company has identified one performance obligation for all the deliverables under the agreement since the delivered elements are either not capable of being distinct or are not distinct within the context of the contract. Accordingly, the Company will recognize revenue for the fixed or determinable collaboration in an amount proportional to the collaboration expenses incurred and the total estimated collaboration expense over the five-year period over which it expects to deliver its performance obligations. We periodically review and update the estimated collaboration expenses, when appropriate, which adjusts the percentage of revenue that is recognized for the period. While such changes to our estimates have no impact on our reported cash flows, the amount of revenue recorded in the period could be materially impacted.
Through December 31, 2018, we recognized revenue from upfront payments for licenses or options to obtain licenses in the future, milestone payments that were generated from defined research or development events, as well as amounts for other research and development services under strategic alliance and collaboration agreements. We recognized revenue when all four of the following criteria were met: (i) persuasive evidence of an arrangement exists; (ii) products have been delivered or services rendered; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.
For all periods presented, amounts received prior to satisfying the above revenue recognition criteria were recognized as deferred revenue until all applicable revenue recognition criteria were met. Deferred revenue represented the portion of payments received that have not been earned.
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Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of stock option awards using the Black-Scholes option pricing model and recognize forfeitures as they occur.
The Black-Scholes option pricing model requires the use of subjective assumptions, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require judgment to develop. See Note 8 to our financial statements included elsewhere in this prospectus for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2018 and 2019. Stock-based compensation totaled approximately $0.1 million and $0.4 million for the years ended December 31, 2018 and 2019, respectively.
As of December 31, 2019, the unrecognized stock-based compensation expense related to stock options was $4.8 million which is expected to be recognized as expense over a weighted-average period of approximately 3.7 years. The intrinsic value of all outstanding stock options as of December 31, 2019 was approximately $ million, based on the assumed public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, of which approximately $ million related to vested options and approximately $ million related to unvested options.
Common Stock Valuations
We are required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. The fair value of the common stock underlying our equity awards was determined on each grant date by our board of directors, taking into account input from management and independent third-party valuation analyses. 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. In the absence of a public trading market for our common stock, on each grant date we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants. Our determinations of the fair value of our common stock were made using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation (the Practice Aid).
Our board of directors considered various objective and subjective factors, along with input from
management, to determine the fair value of our common stock, including:
● | valuations of our common stock performed with the assistance of independent third-party valuation specialists; |
● | our stage of development and business strategy, including the status of research and development efforts of our product candidates, and the material risks related to our business and industry; |
● | our results of operations and financial position, including our levels of available capital resources; |
● | the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; |
● | the lack of marketability of our common stock as a private company; |
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● | the prices of our convertible preferred stock sold to investors in arms length transactions and the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; |
● | the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions; |
● | trends and developments in our industry; and |
● | external market conditions affecting the life sciences and biotechnology industry sectors. |
The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in our valuations.
Historically, we estimated the enterprise value of our business and underlying stock option grants using the back-solve method and used the Option Pricing Method (OPM) to allocate enterprise value. The back-solve method is a market approach that assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor. Under OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. We believed the OPM was the most appropriate method at that time given the expectation of various potential liquidity outcomes and the difficulty of selecting and supporting appropriate enterprise values given our early stage of development. In 2020, we changed to a hybrid of the OPM and Probability-Weighted Expected Return Method (PWERM). The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. Under this hybrid method, we considered the expected initial public offering liquidity scenario, but also used the OPM to capture all other scenarios in the event a near-term initial public offering does not occur.
There are significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates include assumptions regarding our future operating performance, the time to complete an initial public offering or other liquidity event and the determination of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per common share could have been significantly different.
Following the completion of this offering, the fair value of our common stock will be based on the closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.
Accrued Research and Development Costs
We are required to make estimates of our accrued expenses resulting from our obligations under contracts with CROs, manufacturers, vendors and consultants, in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our financial
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statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the preclinical study as measured by the timing of various aspects of the study or related activities. In accruing for these activities, we obtain information from various sources and estimates level of effort or expense allocated to each period.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Other Company Information
Net Operating Loss and Research and Development Carryforwards and Other Income Tax Information
As of December 31, 2019, we had federal and state net operating loss (NOL) carryforwards of $15.3 million and $15.0 million, respectively. The net loss generated in 2019 will carryforward indefinitely but the federal NOL carryforwards generated in tax years beginning after December 31, 2020 will only be available to offset up to 80% of future tax income. The state NOL carryforwards will begin to expire in 2039, unless previously utilized.
As of December 31, 2019, we also had federal and state research credit carryforwards of $0.3 million. The federal research and development tax credit carryforwards expire beginning in 2039 unless previously utilized, and the state research and development tax credit carryforwards do not expire. We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Sections 382 and 383 of the Code, annual use of our NOL and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.
Recently Adopted Accounting Pronouncements
See Note 2 to our financial statements included elsewhere in this prospectus for recently adopted accounting pronouncements.
Quantitative and Qualitative Disclosures About Market Risk
Our cash and cash equivalents consist of cash in readily available checking accounts and money market accounts. We do not hold any short-term investments. As a result, the fair value of our portfolio is relatively insensitive to interest rate changes. Due to the nature of our cash and cash equivalents, an immediate hypothetical 10% change in interest rates would not have a material effect on the fair value of our cash and cash equivalents.
We are exposed to market risk related to changes in foreign currency exchange rates. We contract with vendors that are located outside the United States and certain invoices are denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. To date, these fluctuations have not been significant and based on our expected volumes with these vendors in fiscal year 2020, a movement of 10% in the exchange rates would not have a material effect on our results of operations or financial condition
Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe inflation has had a material effect on our results of operations during the periods presented.
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JOBS Act
As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of this offering; (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion; (iii) the last day of the fiscal year in which we are deemed to be a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period.
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We are pioneering a new class of oligonucleotide-based therapies called Antibody Oligonucleotide Conjugates (AOCs) designed to overcome the current limitations of oligonucleotide therapies in order to treat a wide range of serious diseases. We utilize our proprietary AOC platform to design, engineer and develop therapeutics that combine the tissue selectivity of monoclonal antibodies (mAbs) and the precision of oligonucleotide therapies in order to access previously undruggable tissue and cell types and more effectively target underlying genetic drivers of diseases. We are initially focused on muscle diseases to demonstrate the capabilities of our AOCs, and our muscle franchise consists of five programs. Our lead product candidate, AOC 1001, is designed to treat myotonic dystrophy type 1 (DM1), a rare monogenic muscle disease. We expect to submit an investigational new drug application (IND) for AOC 1001 in 2021 and plan to initiate a Phase 1/2 clinical trial by the end of the same year. We also intend to advance AOC product candidates in our four other muscle programs focused on the treatment of muscle atrophy, Duchenne muscular dystrophy (DMD), facioscapulohumeral muscular dystrophy (FSHD) and Pompe disease. In addition to our muscle franchise, we have development efforts focused on immune and other cell types.
Our AOC Platform
Oligonucleotide therapeutics are designed based on genomic information to specifically inhibit or modify the expression of disease-related proteins and RNAs. Considerable progress has been made toward harnessing the potential of oligonucleotides, and multiple oligonucleotide therapies have been approved for the treatment of several diseases. However, in light of their physical properties, effective systemic delivery of oligonucleotides to a broad range of cells and organs has been one of the most significant factors limiting their utility. Our deep experience with oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques provide the foundation for our efforts to address some of the key limitations of oligonucleotide therapies. We collectively refer to the know-how and proprietary technology born out of this experience, and their systematic application in the design and development of our product candidates, as our AOC platform.
Using our AOC platform, we have established a framework for screening potential cell surface protein-mAb pairs to determine which pairs are well-suited to deliver oligonucleotides to specific cell types to induce pharmacologic changes. In addition to engineering optimized mAbs, we are able to engineer and deploy various types of oligonucleotides whose specific mechanisms of action are designed to modify RNA function in different ways. This flexibility allows us to use oligonucleotides tailored to have the potential to modulate a given disease process, and we further engineer our oligonucleotides to maximize their specificity, potency and stability. Beyond the specific mAb and oligonucleotide components of our engineered AOCs, we also optimize the antibody conjugate design, including the linker, for stability and durability.
We believe that the product candidates derived from our AOC platform will have the potential to offer the following distinct advantages:
● | Expand scope of diseases addressable with oligonucleotides: (i) utilize identified cell surface protein-antibody pairs to design oligonucleotides in order to address various previously undruggable tissue and cell types to induce pharmacologic changes in those tissues and cells; (ii) flexibility to deploy an appropriate oligonucleotide type for different diseases; and (iii) optimize all structural components of our AOCs for effective deliverythe oligonucleotide, the mAb and the antibody conjugate design. |
● | Potential to mitigate toxicity by limiting drug exposure: (i) selection of the most potent oligonucleotide type; (ii) targeted delivery to tissues and cells; and (iii) infrequent administration. |
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● | Less frequent dosing: (i) ability to deliver oligonucleotides to tissues and cells at concentrations that produce pronounced and prolonged pharmacodynamic effects as observed in our preclinical models; and (ii) ability to select appropriate oligonucleotide mechanisms to maximize durability. |
● | Readily reproducible and scalable: (i) AOCs synthesized using well-established and scalable methods for manufacturing mAbs and oligonucleotides; and (ii) ability to use a single mAb across multiple programs provides significant leverage around development costs and timelines associated with each incremental muscle program. For example, we use the same mAb targeting TfR1 across all our muscle programs. |
We are initially focused on muscle diseases for which we believe our AOC approach can overcome the limitations of current oligonucleotide therapies. For example, a single dose of an AOC administered to mice demonstrated a 95% reduction of target gene expression in mouse skeletal muscle, which in part led us to focus on developing a pipeline of AOCs in muscle diseases.
The first program in our muscle franchise is focused on the treatment of DM1 and we are developing our lead product candidate, AOC 1001, as a potentially disease modifying treatment. DM1 is a monogenic, autosomal dominant, progressive disease that primarily affects skeletal and cardiac muscle and is caused by a mutation in the dystrophy myotonic protein kinase (DMPK) gene product or DMPK RNA. DM1 is estimated to affect over 40,000 people in the United States and there are similar prevalence estimates for Europe. However, we believe that, consistent with other rare diseases, the patient population is currently underdiagnosed due to the lack of available therapies. AOC 1001 consists of a proprietary mAb that binds to a transporter protein, transferrin receptor 1 (TfR1), conjugated with a small interfering RNA (siRNA) that is designed to address the underlying cause of DM1 by reducing the levels of DMPK RNA. In preclinical studies, we observed the ability of our AOC to deliver siRNAs to muscle cells, and reduce levels of messenger RNA (mRNA) for the DMPK gene, the molecular driver of the disease, in a durable, dose-dependent manner. We expect to submit an IND for AOC 1001 in 2021 and we plan to initiate a Phase 1/2 clinical trial in DM1 patients by the end of the same year to assess the safety, tolerability, pharmacokinetics, pharmacodynamics and exploratory clinical measures associated with AOC 1001. Due to the lack of available therapies in this rare disease, should our trial be successful, we plan to pursue opportunities to accelerate our development pathway in order to expedite making AOC 1001 available for a patient population in severe need.
The second program in our muscle franchise is focused on muscle atrophy. Muscle atrophy is the loss of skeletal muscle mass that leads to muscle weakness and physical disability and can be caused by malnutrition, medications, injury or diseases such as sarcopenia, cachexia and many rare genetic muscle disorders. Our AOC consists of our proprietary mAb targeting TfR1 conjugated with an siRNA designed to downregulate the levels of muscle ring finger protein 1 (MuRF1) mRNA, a muscle-specific ubiquitin ligase (E3 ligase) that has been shown to be upregulated upon induction of muscle atrophy. By targeting MuRF1, we have focused on an approach employing common effectors of both the catabolic and anabolic pathways associated with the degradation of protein in muscle cells, unlike prior attempts to find therapeutics that primarily addressed either catabolic or anabolic pathways. In
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preclinical studies, we observed that a single 3 mg/kg dose of the siRNA in our AOC resulted in a greater than 50% reduction in MuRF1 mRNA for over 20 weeks. We are in the process of selecting a product candidate for the treatment of muscle atrophy. Following regulatory clearance, in 2022, we plan to advance a product candidate into a Phase 1 clinical trial in healthy volunteers with a limb temporarily immobilized to induce muscle atrophy. In this trial, we plan to assess pre- and post-treatment measurements of MuRF1 expression, biomarkers and histological changes, as well as certain clinical measurements that we believe could demonstrate signals of activity. Our continued development activities will inform our view on the indications and development path to pursue.
The third program in our muscle franchise is focused on DMD, which is the most common and severe form of muscular dystrophy and is progressive, irreversible and ultimately fatal. DMD occurs in approximately one in every 3,500 to 5,000 live male births and is estimated to affect 10,000 to 15,000 people in the United States. DMD is caused by mutations in the DMD gene that encodes for the gene product dystrophin, a protein critical for the normal function of muscle cells. These mutations lead to certain exons being misread resulting in the loss of function of the dystrophin protein. Our oligonucleotides are designed to promote the skipping of those exons to restore a functional version of the dystrophin protein. We are focusing our initial efforts on the development of AOCs for mutations amenable to skipping Exon 44, Exon 45 and Exon 51. We intend to conjugate the oligonucleotides to our proprietary mAb targeting TfR1. In a preclinical model of DMD, the mdx mouse model, we observed that treatment of mdx mice with an AOC caused a greater than 50-fold increase in exon skipping compared to an equimolar dose of the unconjugated oligonucleotide. Following regulatory clearance, we plan to commence a clinical trial for DMD in 2022.
We are also pursuing programs in FSHD and Pompe disease, both rare muscle diseases. FSHD is one of the most common forms of muscular dystrophy, with onset typically in teens and young adults. FSHD is caused by aberrant expression of a gene, double homeobox 4 (DUX4), in adult skeletal muscle and is characterized by progressive skeletal muscle loss. Our therapeutic strategy in FSHD is to use an AOC based on our proprietary mAb targeting TfR1 to deliver an siRNA targeted to the DUX4 mRNA. Pompe disease is a rare, autosomal recessive lysosomal storage disease caused by a mutation in the gene that encodes for acid alpha-glucosidase (GAA) that results in the buildup of glycogen in the bodys cells, causing impairment of normal tissue and organ function. Pompe disease is currently treated with enzyme replacement therapy (ERT), which does not adequately address the breakdown of muscle tissue associated with the disease. Our program in Pompe disease also utilizes an AOC based on our proprietary mAb targeting TfR1 to deliver an siRNA targeting the glycogen synthetase 1 (GYS1) mRNA to diminish the toxic accumulation of glycogen in muscle. We are in the process of developing lead candidates for both FSHD and Pompe disease.
We also intend to pursue the development of AOCs in cell types in addition to muscle. In preclinical models, we observed the ability of AOCs not only to deliver to the liver, skeletal and cardiac muscle, but also to other tissue and cell types, including immune cells. For example, we have identified multiple receptor-antibody pairs that could be used in our AOCs in order to deliver siRNAs into different immune cells, including those related to immuno-oncology. In preclinical studies, we observed significant AOC-mediated mRNA knockdown in CD8+ and CD4+ tumor infiltrating lymphocytes and T-regs in vivo, while also observing no effect on mRNA levels in T or B cells in the spleen. These observations around the specificity and selectivity of our AOCs are the basis for our interest in exploring the utility of our AOCs in immunology. We plan to continue to invest in our AOC platform in order to explore the potential of our AOCs in previously inaccessible tissue and cell types in order to develop next generation oligonucleotide therapies.
We hold worldwide development and commercial rights to all our muscle programs. We have a disciplined strategy to maximize the value of our pipeline whereby we plan to retain development and commercialization rights to those product candidates, indications and geographies that we believe we
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can ultimately commercialize successfully on our own. We plan to collaborate on product candidates that we believe have promising utility in disease areas or patient populations that are better served by the resources or specific expertise of other biopharmaceutical companies. For example, in April 2019, we entered into a Research Collaboration and License Agreement (the Lilly Agreement) with Eli Lilly and Company (Lilly) for the discovery, development and commercialization of AOCs directed to up to six mRNA targets initially in immunology and other select indications on a worldwide basis.
We have assembled a management team with deep experience in the discovery, development and commercialization of RNA therapeutics, including an extensive knowledge of oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques. Our President and CEO, Sarah Boyce, has significant experience in the development and commercialization of RNA therapeutics and in building global organizations, most recently having served as President of Akcea Therapeutics. Our Chief Scientific Officer, Arthur A. Levin, Ph.D., is a key opinion leader in the RNA therapeutics field who led teams responsible for the development of many oligonucleotides including the first approved antisense drugs and the first micro-RNA targeted therapeutic to enter clinical trials. Our Chief Operating Officer, Joseph Baroldi, brings a depth of business development experience in RNA therapeutics having led more than twenty strategic transactions, most recently as Vice President, Business Development at Ionis Pharmaceuticals.
In addition, our investors include leading life science institutions including RTW Investments, Alethea Capital, Alexandria Venture Investments, Boxer Capital of Tavistock Group, Brace Pharma Capital, Cormorant Asset Management, LP, CureDuchenne, EcoR1 Capital, Logos Capital, Partner Fund Management, Perceptive Advisors LLC, ST Pharm and Takeda Ventures.
Our Strategy
Our goal is to discover, develop and commercialize novel AOC therapeutics that overcome current barriers to the delivery of oligonucleotides and unlock their potential to treat a wide range of serious diseases currently lacking adequate treatment options. Key elements of our strategy to achieve this goal are to:
● | Rapidly advance our lead product candidate AOC 1001 through clinical proof-of-concept to approval. We are developing AOC 1001 for the treatment of DM1, a serious rare monogenic disease for which there are no available therapies. Therefore, we are highly focused on a development path that could enable us to deliver a therapy to patients in need as soon as possible. AOC 1001 is specifically designed to reduce levels of DMPK mRNA, the gene product that when mutated causes DM1. In preclinical studies, we observed the ability of our AOC to deliver siRNAs to muscle cells, and reduce levels of mRNA for the DMPK gene, the molecular driver of the disease, in a durable, dose-dependent manner. We expect to submit an IND for AOC 1001 in 2021 and plan to initiate a Phase 1/2 clinical trial by the end of the same year. Assuming that the results of our Phase 1/2 clinical trial are positive, we plan to meet with regulatory authorities to discuss potential expedited regulatory pathways. |
● | Achieve clinical proof-of-mechanism for our muscle atrophy program. We are in the process of selecting a lead candidate for the treatment of muscle atrophy, a condition associated with several diseases including sarcopenia, cachexia and rare genetic muscle diseases. By targeting MuRF1, a muscle-specific E3 ligase that has been shown to be upregulated upon induction of muscle atrophy, we are developing a solution employing common effectors of both the catabolic and anabolic pathways associated with the degradation of protein in muscle cells, unlike prior attempts to find a solution by addressing only one of these pathways. Following regulatory clearance, in 2022, we plan to advance a product candidate into a Phase 1 clinical trial in healthy volunteers with a limb temporarily immobilized to induce muscle atrophy. In this trial, we plan to assess pre- and post-treatment |
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measurements of MuRF1 expression, biomarkers and histological changes, as well as certain clinical measurements that we believe could demonstrate signals of activity. Our continued development activities will inform our view on the indications and development path to pursue. |
● | Rapidly progress our DMD program into clinical development and advance our other rare muscle disease programs. We are developing AOCs to treat the underlying cause of DMD. We employ oligonucleotides to promote the skipping of specific exons in order to address a number of specific mutations in the dystrophin gene. Our initial development efforts are expected to be in boys with DMD mutations amenable to skipping Exon 44, Exon 45 and Exon 51. In preclinical studies, we observed that treatment with an AOC caused an approximately 50-fold increase in exon skipping compared to the unconjugated oligonucleotide. In 2022, following regulatory clearance, we plan to commence a clinical trial. Our deep muscle pipeline is further supplemented by our efforts to explore the utility of AOCs in both FSHD and Pompe disease on the premise that our AOCs are well-suited to address muscle diseases caused by aberrant expression of a single gene. |
● | Expand our pipeline into additional tissue and cell types. In preclinical models, we have observed the ability to deliver AOCs not only to the liver, skeletal and cardiac muscle, but also to immune cells and other tissue and cell types. In regards to potential in immuno-oncology, in preclinical studies we observed significant AOC-mediated mRNA reduction in CD8+ and CD4+ tumor infiltrating lymphocytes and T-regs in vivo. These observations with respect to the specificity and selectivity of our AOCs are the basis for our interest in exploring the utility of our AOCs in immunology and also serve as the basis for our collaboration with Lilly. We plan to continue to invest in our AOC platform to explore the full potential of our AOCs in additional previously inaccessible tissue and cell types. |
● | Independently commercialize any approved products in indications and geographies where we believe we can maximize value and pursue other options to realize the full potential of our platform. We have a disciplined strategy to maximize the value of our pipeline by retaining development and commercialization rights to those product candidates, indications and geographies that we believe we can ultimately commercialize successfully on our own if they are approved. We plan to collaborate on product candidates that we believe have promising utility in disease areas or patient populations that are better served by the resources or specific expertise of other biopharmaceutical companies. Our collaboration with Lilly is an example of where we believe that the development of certain immunology targets is well served by a strategic collaboration. |
Our AOC Product Platform
Overview
We are pioneering a new class of oligonucleotide-based therapies called Antibody Oligonucleotide Conjugates (AOCs) designed to overcome the current limitations of oligonucleotide therapies in order to treat a wide range of serious diseases. We utilize our proprietary AOC platform to design, engineer and develop therapeutics that combine the tissue selectivity of monoclonal antibodies (mAbs) and the precision of oligonucleotide therapies in order to access previously undruggable tissue and cell types and more effectively target underlying genetic drivers of diseases. All of our oligonucleotides target disease-related RNA. RNA is a polymeric molecule essential in the coding, decoding, regulation and expression of genes. We have accumulated deep experience regarding oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques. We collectively refer to the know-how and proprietary technology born out of this experience, and their systematic application in the design and development of our product candidates, as our AOC Platform.
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Evolution of Oligonucleotide Therapeutics
Oligonucleotide therapeutics are typically short strands of modified RNA or DNA that are manufactured by chemical synthesis. They are designed, based on genomic information using Watson and Crick base pairing rules, to inhibit or modify the expression of specific disease-related proteins and RNAs. Because messenger RNA (mRNA) serves as the template for synthesis of all proteins, modulating the levels or function of a disease-related RNA alters the production of disease-associated proteins in a highly specific fashion which, in turn, alters disease processes. When delivered to the cells where the functional change is needed, oligonucleotides have been shown to be effective at modifying the molecular basis of the disease.
Considerable progress has been made toward harnessing the potential of oligonucleotides, and multiple oligonucleotide therapies have been approved for the treatment of several diseases. However, in light of their physical properties, such as their size and water solubility, effective systemic delivery of oligonucleotides to a broad range of cells and organs has been one of the most significant factors limiting their utility.
Single-stranded phosphorothioate oligonucleotides (often referred to as antisense oligonucleotides (ASOs)) bind nonspecifically to plasma and cell surface proteins. As a result, ASOs accumulate in the liver and the kidney as part of the natural filtering function of those organs. However, even when the liver is the target organ for delivery, the ASOs non-specific binding and uptake results in most of the drug being delivered to non-parenchymal cells rather than the true target for therapeutic activity, hepatic parenchymal cells. As a result, many early ASO-based therapeutics were limited to organs where site-specific delivery to cells was an effective therapeutic approach, for example by intrathecal administration to the central nervous system (CNS) or by intravitreal administration to the retina.
Unlike ASOs, the physical properties of small interfering RNA (siRNA) and phosphorodiamidate morpholino oligomers (PMOs) render them so they can only weakly bind to either plasma or cell surface proteins. Thus, they are ultimately cleared rapidly from plasma by renal filtration, with fractional reabsorption in the kidney. If unconjugated, or unformulated, these oligonucleotides have minimal uptake into target organs. Therefore, they require high doses to be administered frequently that increase the potential for toxicity, while yielding limited activity.
Despite the limitations of these early unconjugated oligonucleotide technologies, companies have employed these approaches to commercialize oligonucleotide drugs that generated an aggregate of over two billion dollars of sales in 2019.
Following these early approaches, the field turned towards finding appropriate conjugates to aid in delivery of oligonucleotides in order to increase uptake. Third parties have conjugated PMO-based oligonucleotides to charged peptides in order to penetrate cells. These peptide PMOs (PPMOs) help increase uptake into cells such as muscle, but clearance remains relatively rapid and the accumulation of these highly-charged, cell penetrating peptides has been associated with renal functional changes. In clinical trials, these compounds have not yet demonstrated an improvement in efficacy over unconjugated PMOs or established a long-term safety profile.
More recently, researchers have begun to engage proteins on cell surfaces to enhance the delivery of oligonucleotides using a process called receptor-mediated uptake. Conjugating sugar molecules (GalNAc) to oligonucleotides in order to engage asiaglycoprotein (ASGPR), a transporter protein expressed primarily on the surface of hepatic parenchymal cells, facilitates intracellular delivery of oligonucleotide therapeutics, resulting in increased efficiency as compared to unconjugated oligonucleotides. The emerging preclinical and clinical data around the GalNAc-ASGPR approach and recent FDA approval of givosiran, which uses this approach, supports the thesis that receptor-mediated uptake is a viable delivery strategy for oligonucleotides therapies.
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In order to increase the uptake of oligonucleotides, efforts have also been made to use antibody conjugates as a means of delivering oligonucleotides into cells. Antibodies are naturally occurring proteins produced by the immune system that first identify and then neutralize or clear antigens, such as bacteria, viruses and other substances, by selectively binding to these foreign substances. A mAb is a single, homogeneous entity that recognizes a specific molecular entity, for example a cell surface protein. Today, mAbs are frequently engineered for desired characteristics, such as high selectivity and high affinity for their target cell surface proteins and, therefore, theoretically could facilitate the trafficking of oligonucleotide therapeutics into those cells. However, we believe that others have tried and failed to make viable antibody conjugated oligonucleotides because of the failure to optimize each of the mAb, the oligonucleotide and the antibody conjugate design. Finding the right transport protein and the right mAb requires an understanding of whether there is sufficient density of the targeted cell surface receptor to move the required number of therapeutic molecules into the cell and how to traffic the therapeutic molecules appropriately.
Overall, we believe the advancements in the oligonucleotide field support the hypothesis that delivery of oligonucleotides can be greatly enhanced by using appropriate conjugates that are recognized by specific proteins on the surface of cells.
Our Approach
Our AOC platform was developed out of our deep experience with oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques. Based on the data-driven hypothesis that the delivery of oligonucleotides can be greatly enhanced by using antibodies as conjugates, our scientists have established a framework for screening potential cell surface protein-mAb pairs to determine which pairs we believe are well suited to deliver active oligonucleotides to specific cell types. We have identified multiple cell surface protein-mAb pairs that can deliver oligonucleotides into various tissue and cell types to induce pharmacologic changes. For example, we have employed AOCs built on a scaffold of a mAb or mAb fragment that binds with high selectivity and affinity to transferrin receptor 1 (TfR1) to deliver oligonucleotides to cell types outside of the liver, in particular to muscle.
Our AOC platform also affords us the option to deploy various types of oligonucleotides, including siRNAs and PMOs, whose specific mechanisms of action modify RNA function in different ways. This flexibility allows us to use oligonucleotides that are tailored to modulate a given disease process. Mechanisms of these oligonucleotides can range from reducing the expression of a disease-related RNA with siRNAs, to correction of aberrant processing of RNAs with splice modifying oligonucleotides.
In preclinical studies, our AOCs have demonstrated pharmacologic responses as measured by mRNA reduction in liver, skeletal muscle, cardiac muscle, B- and T-cells and lymphocyte subsets, as well as macrophages (see Figure 1 below).
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Figure 1: Percent Reduction of Target Gene Expression
Different AOCs and controls were used in each cell type, which were studied independently. The mAb/siRNA for each tissue are as follows: Liver: ASGPR/Factor VII; Muscle/Heart: TfR1/myostatin; B Cells: TfR1/HPRT; Tregs: mAbx/HPRT; CD8+TILs: TfR1/SHP2; and Macrophages: Aby/HPRT.
Our AOC Platform Proprietary Chemistry
Successfully engineering an active AOC requires a sophisticated understanding of the precise characteristics of each of the components of the AOC, as well as their behavior when acting in concert. We have deployed significant know-how towards optimizing our AOCs, beginning with their individual oligonucleotide and mAb components.
Optimization of the oligonucleotide. We have engineered our oligonucleotides to maximize their stability, potency and specificity. For many of our applications, the oligonucleotide we employ is a double-stranded siRNA, comprised of a passenger and guide strand. Modifications to the passenger strand are designed to reduce loading into the RNA Induced Silencing Complex (RISC), decreasing inadvertent RNA interference (RNAi) activity. In comparison, modifications to the guide strand, also known as the active strand, are designed to enhance RISC loading, increasing the potential for matching sequences in newly transcribed RNA. Following a match, enzymes in the RISC will cleave the targeted mRNA, thereby effectively destroying it and reducing disease-related RNA levels (see Figure 2 below). Our siRNAs have been stabilized to withstand the nucleases in lysosomes, enhancing their ability to escape the lysosome after AOC internalization and antibody degradation.
Figure 2: Mechanisms of Action of Oligonucleotides Used in our AOCs
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In preclinical studies, we observed that AOCs in circulation were stable for at least seven days. The biologic activity of the AOC was independent of plasma circulation times because the AOCs were cleared from plasma more rapidly than tissues. Once delivered into cells, our oligonucleotide therapeutics were stabilized and, particularly when loaded into the RISC, had prolonged activity. In mice treated with our AOC, the half-life of siRNA in muscle tissue was approximately 12 days (see left panel of Figure 3 below). In comparison, the half-life of siRNA in RISC had a projected half-life of approximately 80 days, suggesting that, once in tissues, the siRNA is stabilized in RISC, prolonging the duration of action (see right panel of Figure 3 below).
Figure 3: Half-life of siRNA in Mice Muscle Tissue and RISC
Ln represents the logarithm of tissue concentration.
We believe that chemical modifications to the siRNA drive their long-lived pharmacologic activity. We observed that a single dose of 3 mg/kg of an siRNA in an AOC administered to mice reduced the level of muscle ring finger protein 1 (MuRF1), the targeted mRNA in muscle, for more than five months (see Figure 4 below). We believe that these results suggest that AOCs for muscle diseases may be given as infrequent intravenous doses similar to those that are being used with other siRNA therapeutics in the liver.
Figure 4: Duration of Response to Single 3 mg/kg Dose
Data are expressed as mean (SE) compared to saline controls.
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Optimization of the mAb. Because the mAb is the key delivery agent for our oligonucleotides, we are focused on identifying and tailoring mAbs to enhance their selectivity and minimize toxicity. For example, all our muscle programs employ our proprietary, effector function null, fully humanized IgG1 mAb targeting human TfR1. This antibody was selected to minimize interference with transferrin binding, minimizing alterations of iron uptake by the targeted cells. Further, our antibody is selective to TfR1 and does not cross-react with TfR2, which is widely expressed in the liver. Selectivity of our anti-transferrin receptor antibody for human and cynomolgus monkey TfR1 can be attributed to our antibody binding domain, to an epitope that is conserved between human TfR1 and cynomolgus monkey TfR1. To minimize antibody-dependent cell-mediated cytotoxicity (ADCC) and complement fixation, we introduced mutations to eliminate effector functions. Reduction of ADCC has been shown for the lead clones. The final clone-expressing cell was selected based on high production yields and optimized physical and chemical properties. The selected mAb demonstrated good delivery into human skeletal muscle cells in vitro and favorable bioconjugation with an siRNA, and polyclonal versions of the mAb showed favorable delivery and pharmacodynamics in studies in cynomolgus monkeys.
Optimization of the antibody conjugate design. In addition to the oligonucleotide and the mAb, we have also optimized the conjugation of the two, including the linker. Our linkers are optimized for stability and durability, as evidenced by preclinical studies in which we observed enhanced stability of some linkers over others (see Figure 5 below).
Figure 5: AOCs with Different Linkers at 0.5 mg/kg
In addition to optimizing our linker, we optimize several other key aspects including sites of conjugation and the ratio of oligonucleotides to antibodies.
Advantages of our AOC Product Platform
We believe that the product candidates derived from our AOC platform will have the potential to offer the following distinct advantages:
● | Expand scope of diseases addressable with oligonucleotides: (i) utilize identified cell surface protein-antibody pairs to design oligonucleotides in order to address various previously undruggable tissue and cell types to induce pharmacologic changes in those tissues and cells; (ii) flexibility to deploy an appropriate oligonucleotide type for different diseases; and (iii) optimize all structural components of our AOCs for effective deliverythe oligonucleotide, the mAb and the antibody conjugate design. |
● | Potential to mitigate toxicity by limiting drug exposure: (i) selection of the most potent oligonucleotide type; (ii) targeted delivery to tissues and cells; and (iii) infrequent administration. |
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● | Less frequent dosing: (i) ability to deliver oligonucleotides to tissues and cells at concentrations that produce pronounced and prolonged pharmacodynamic effects as observed in our preclinical models; and (ii) ability to select appropriate oligonucleotide mechanisms to maximize durability. |
● | Readily reproducible and scalable: (i) AOCs synthesized using well-established and scalable methods for manufacturing mAbs and oligonucleotides; and (ii) ability to use a single mAb across multiple programs provides significant leverage around development costs and timelines associated with each incremental muscle program. For example, we use the same mAb targeting TfR1 across all our muscle programs. |
Our Development Programs
We have leveraged our deep experience with oligonucleotide therapeutics, modulation of RNA processes, antibody engineering and conjugation, and drug delivery techniques to build a pipeline of AOC development programs. Leveraging our access to extensive mAb libraries and our framework for screening potential cell surface protein-mAb pairs, we have studied over 100 different mAbs and dozens of siRNA sequences to form the basis of our growing pipeline. The chart below represents a summary of our wholly-owned development programs, which are focused on muscle disease:
In addition to our wholly-owned programs in muscle disease, we also have development efforts focused on immune and other cell types. Under the Lilly Agreement, we are collaborating with Lilly for the discovery, development and commercialization of AOCs directed to up to six selected mRNA targets, in immunology and other select indications outside of muscle.
Our Muscle Disease Franchise
We have selected muscle as the first tissue type in which to explore the potential of our AOCs. In our early screening efforts, we observed a 95% reduction of target gene expression in mouse skeletal muscle with the AOC we tested, which in part led us to focus on developing a deep pipeline of AOCs that are designed to address five muscle diseasesDM1, muscle atrophy, DMD, FSHD and Pompe disease. We use the same proprietary mAb targeting TfR1 across our muscle programs, which we believe gives us significant leverage of development costs and timelines associated with each incremental muscle program.
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AOC 1001 for the Treatment of Myotonic Dystrophy Type 1 (DM1)
Our lead product candidate, AOC 1001, is a potentially disease-modifying treatment for DM1. AOC 1001 consists of a proprietary mAb targeting TfR1 conjugated with an siRNA that is designed to reduce levels of dystrophy myotonic protein kinase (DMPK) RNA, the gene product that when mutated causes DM1. In preclinical studies in mice and cynomolgus monkeys, we observed the ability of AOC 1001 to deliver siRNAs to muscle cells and reduce the levels of DMPK RNA. We expect to submit an IND for AOC 1001 in 2021 and plan to initiate a Phase 1/2 clinical trial by the end of the same year. Due to the lack of available therapies for this rare disease, should our trial be successful, we plan to pursue opportunities to accelerate our development pathway in order to expedite availability of AOC 1001 to patients.
Disease Overview
DM1 is a monogenic, autosomal dominant, progressive disease that primarily affects skeletal and cardiac muscle. DM1 patients can suffer from various manifestations of the disease including myotonia and muscle weakness, respiratory problems, fatigue, hypersomnia, cardiac abnormalities, severe gastrointestinal (GI) complications, and cognitive and behavioral impairment.
DM1 is caused by an increase in the number of CUG triplet repeats found in the 3 non-coding region of the DMPK gene product. The number of repeats ranges from up to approximately 35 in healthy individuals to many thousands in DM1 patients. The higher than normal number of CUG repeats form large hairpin loops that entrap the DMPK pre-mRNA in the nucleus and impart toxic activity, referred to as a toxic-gain-of function. Specifically, mutant DMPK pre-mRNA sequesters a critical CUG binding protein, muscle blind-like protein (MBNL), forming nuclear foci and inhibiting its ability to perform its normal function of guiding pre-mRNA processing of gene transcripts from many other genes. As a result, multiple pre-mRNAs that encode key proteins are mis-processed. The resulting atypical proteins that are translated ultimately cause DM1. When DMPK and CUG levels are reduced as result of DPMK mRNA level reductions, nuclear foci are diminished and MBNL can perform its normal function. This disease process is illustrated in Figure 6 below.
Figure 6: DM1 Disease Process
DM1 is estimated to affect over 40,000 people in the United States and there are similar prevalence estimates for Europe. However, we believe that, consistent with other rare diseases, the patient population is currently underdiagnosed due to lack of available therapies. DM1 is highly variable with respect to disease severity, presentation, and age of onset. As we advance our own efforts to better characterize the actual DM1 patient population and as the diagnoses rate improves with the advent of new therapies, we believe that the overall prevalence estimates will increase. Based on age of onset and severity of symptoms, DM1 is typically categorized into four overlapping phenotypes: late-onset; classical (adult-onset); childhood; and congenital (cDM1).
All forms of DM1, except the late-onset form, are associated with high levels of disease burden and premature mortality. Excluding neonatal cDM1 deaths, life expectancy ranges from 45 years to 60
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years. Seventy percent of early mortality is caused by cardiorespiratory complications. Respiratory failure due to muscle weakness (especially diaphragmatic weakness), causes at least 40% of early mortality, and cardiac abnormalities, including sudden death, account for approximately 30%. The clinical course of DM1 is usually slowly progressive, but may become extremely disabling, especially when more generalized limb weakness and respiratory muscle involvement develops. Systemic manifestations such as fatigue, GI complications, incontinence and excessive daytime sleepiness greatly impact a patients quality of life. As a result, DM1 leads to physical impairment, activity limitations and decreased participation in social activities and work.
Table 2: DM1 Phenotypes
Phenotype |
Principal Clinical Signs |
Estimated % of |
Age of Onset | |||
Late-onset | Myotonia
Mild muscle weakness
Cataracts |
<10% | 20-70 years | |||
Classical (Adult-onset) |
Muscle weakness and wasting
Myotonia
Cardiac conduction abnormalities
Respiratory insufficiency
Fatigue/Excessive daytime sleepiness
GI disturbance
Cataracts |
75% | 10-30 years | |||
Childhood | Psychosocial problems
Low IQ
Incontinence |
<10% | 1 to 10 years | |||
Congenital (cDM1) | Infantile hypotonia
Severe generalized weakness
Respiratory deficits
Intellectual disability
Classic signs present in adults |
15% | Birth |
Current Treatment Landscape and Limitations
There are currently no approved therapies to treat DM1, and treatment is focused largely on symptom management. Due to the well-known challenges of delivery, a previous attempt at treating DM1 with an unconjugated antisense oligonucleotide was discontinued. Therefore, there remains a high unmet medical need for new disease modifying therapies.
Tideglusib, an inhibitor of glycogen synthase kinase 3 (GSK3-ß), is in late-stage clinical development for the cDM1. Another product candidate, ERX-963, is in a Phase 1 clinical trial for the treatment of excessive daytime sleepiness in DM1 patients. However, neither product candidate addresses the underlying genetic cause of the DM1. We are also aware of preclinical efforts in gene therapy for the treatment of DM1.
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Our Solution
AOC 1001 consists of a proprietary mAb that binds to TfR1 conjugated with an siRNA, siDMPK.19, targeted to DMPK RNA, and is designed to be administered to the patient as an intravenous infusion. We believe that the following specific characteristics of AOC 1001 position it to have advantages over historical and current efforts to develop an effective therapy for DM1 patients:
∎ | Addresses the underlying cause of the diseaseDM1 is caused by an increase in the number of CUG triplet repeats occurring in the DMPK gene product. AOC 1001 is designed to inhibit the level of toxic DMPK RNA, thereby reducing the CUG burden in the nucleus and thereby releasing MBNL to allow for normal mRNA processing (see Figures 7 and 8 below). |
∎ | Efficient delivery of drug substance to diseased cellsIn an effort to solve for challenges identified in prior unsuccessful efforts to deliver an unconjugated oligonucleotide into muscle cells, the TfR1 antibody component of AOC 1001 facilitates efficient delivery of AOC 1001 to skeletal and cardiac muscle cells. Once inside the muscle cells, the siRNA component of AOC 1001, siDMPK.19, acts to reduce levels of DMPK mRNA in both the nucleus and the cytoplasm. In preclinical studies in cynomolgus monkeys, we observed that treatment with an AOC containing siDMPK.19 produced a greater than 50% reduction of DMPK mRNA across a wide range of skeletal muscles at a concentration of 1 nM or less, approximately 1,000 fold more potent than has been reported for an unconjugated antisense oligonucleotide. We also observed reductions in DMPK mRNA in the GI tract. |
∎ | Reproducible and scalable therapeuticAs with all our AOCs, AOC 1001 is readily synthesized using well-established and scalable methods for manufacturing mAbs and oligonucleotides. |
Our preclinical studies to date support our hypotheses on the potential advantages of AOC 1001. In in vitro experiments in cells from patients with DM1, after treatment with siDMPK.19, we observed reductions in nuclear foci, and a return to more normal splicing patterns for key genes. Additionally, marked and prolonged reduction in DMPK mRNA levels was observed in cynomolgus monkeys after administration of a single intravenous dose of an AOC consisting of the lead TfR1-Ab conjugated to siDMPK.19. Treatment in these monkeys was well-tolerated and no clinically meaningful changes in hematology, serum biochemistry or histology were observed at a dose of 6 mg/kg. Taken together, we believe these data suggest that AOC 1001 has potential to be a disease modifying therapy for the treatment of DM1, and has the potential advantage of infrequent administration.
Preclinical Data and Next Steps
We have observed dose-dependent and long-lasting reductions in the levels of DMPK in cynomolgus monkeys. We observed that a single dose of 2 mg/kg of siDMPK.19 included in AOC 1001 produced an approximately 75% reduction of DMPK mRNA in skeletal muscles from cynomolgus monkeys (see Figure 7 below). Similar effects were observed in cardiac muscle and the diaphragm, where we observed between a 50% to greater than 75% reduction in DMPK levels with single doses of 1 to 5 mg/kg of siDMPK.19 measured six weeks after administration (see left panel of Figure 8 below). Durability of response in the heart and diaphragm was observed in monkeys administered a single dose of 2 mg/kg where there were approximately 50% and 65% reductions in DMPK mRNA levels in cardiac muscle and diaphragm, respectively, 12 weeks after administration (see right panel of Figure 8 below).
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Figure 7: DMPK mRNA Levels in Skeletal Muscle from Cynomolgus Monkey
After a Single Dose of 2mg/kg of siDMPK.19
Figure 8: DMPK mRNA Levels in Heart and Diaphragm
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In preclinical studies in cynomolgus monkeys, we observed that treatment with an AOC containing siDMPK.19 produced a greater than 50% reduction of DMPK mRNA across a wide range of skeletal muscles at a concentration of 1 nM or less and we also observed reductions in DMPK mRNA in the jejunum and ileum (see Figure 9 below).
Figure 9: DMPK mRNA Expression and siDMPK.19 Concentration in Muscle and GI Tissue
There is substantial evidence that siRNA is active in the nucleus of cells and we believe that our RISC-based mechanism is preferable over other strategies. In preclinical studies, we observed that DM1 patient cells have approximately 30-times more metastasis associated lung adenocarcinoma transcript 1 (Malat1), a long non-coding RNA in the nucleus than in the cytoplasm. In incubation of DM1 patient cells with an siRNA targeting two different concentrations of Malat1, we observed reductions in the levels of Malat1, consistent with the literature. We also observed that incubating DM1 patient cells with siDMPK.19 for seven hours reduced levels of the DMPK mRNA in both the nucleus and the cytoplasm as compared to a control (see Figure 10 below).
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Figure 10: Nuclear and Cytoplasmic DMPK mRNA Levels in DM1 Patient-Derived Muscle Cells
Because siRNA is active in the nucleus, we observed in preclinical studies that it is possible to reduce the number of MBNL-associated nuclear foci after incubation with siDMPK.19. Using fluorescence microscopy, we observed that incubation of DM1 patient cells with siDMPK.19 resulted in a release of the MBNL and quantifiable reductions in nuclear foci. In addition, we observed substantial improvements in the splice score in the cells of DM1 patients following treatment with siDMPK.19. We used RNA-sequence (RNA-seq) analysis of the myotubes from DM1 patients to create a splice score for control human subjects cells treated with siDMPK.19 or the inactive siRNA, siDMPK.29. When patient myotubes were analyzed, there was a marked improvement in the splice score of the myotubes treated with the siDMPK.19 compared to the inactive siDMPK.29 (see Figure 11 below). The splice signature approached that of control myotubes.
Figure 11: Correction of Treatment Signature in DM1 Myotubes as Determined by RNA-seq
Splice score of treated DM1 myotubes was observed to be improved towards normal by incubation with siDMPK.19 (blue open circles), but not by an inactive siRNA (green open triangles). The filled circles and inverted triangles represent the splice scores in myotubes from normal subjects treated with siDMPK.19 and the inactive siDMPK.29, respectively. The black diamonds represent mock transfected myotubes from healthy individuals. Those three data sets from control myotubes provide a demonstration of the normal splice score.
These data above demonstrating marked and prolonged reductions in levels of DMPK mRNA expression, nM potency, along with reductions in nuclear foci and a return to more normal splicing patterns for key genes, suggest that AOC 1001 has potential to be a potent, infrequently dosed, disease modifying therapy in DM1. The mAb targeting TfR1 conjugated with siDMPK.19 dosed in
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monkeys has been well tolerated and no clinically meaningful changes in hematology, serum biochemistry or histology have been observed after administration of a dose of 6 mg/kg.
We are currently conducting toxicity studies in preparation for clinical development. We plan to submit an IND in 2021 and expect to initiate a Phase 1/2 clinical trial by the end of the same year. Initially we plan to evaluate multiple dose levels of AOC 1001 in adult-onset patients with genetically confirmed DM1 who have measurable muscle strength deficits. We will assess several measures including safety, tolerability, pharmacokinetics, pharmacodynamics and exploratory clinical measures associated with AOC 1001. We also plan to explore the potential of AOC 1001 in the cDM1 and childhood onset patient populations. Because AOC 1001 targets the underlying cause of DM1 by reducing the level of mutant DMPK mRNA in muscle and heart tissue regardless of the number of CUG repeats, we believe it has the potential to clinically benefit all phenotypes of DM1 patients.
Our Muscle Atrophy Program
We are in the process of selecting a product candidate for the treatment of muscle atrophy. Our product candidate will consist of our proprietary mAb targeting TfR1 conjugated with an siRNA designed to downregulate the expression of muscle ring finger protein 1 (MuRF1) RNA. By targeting MuRF1, a muscle-specific ubiquitin ligase (E3 ligase) that has been shown by third parties to be upregulated upon induction of muscle atrophy, we are developing a solution employing common effectors of both the catabolic and anabolic pathways associated with the degradation of protein in muscle cells. While several historical attempts at developing a therapy to treat muscle atrophy have failed, those attempts followed a different approach than we are taking. In preclinical studies, we observed that a single 3 mg/kg dose of the siRNA in our AOC resulted in a greater than 50% reduction of MuRF1 in gastrocnemius skeletal muscle for over 20 weeks. Following regulatory clearance, we plan to advance our product candidate into a Phase 1 clinical trial in 2022. The strength and scope of emerging data over this period will inform our view on ideal indications to pursue for advanced development and therefore, also our decision on the most appropriate future development path for our muscle atrophy product candidate.
Disease Overview
Muscle atrophy is the loss of skeletal muscle mass that leads to muscle weakness and physical disability. Muscle atrophy can be caused by immobility, aging, malnutrition, medications, or a wide range of injuries or diseases that impact the musculoskeletal or nervous system. Examples of diseases that cause muscle atrophy include those characterized by large patient populations such as sarcopenia and cachexia, as well as many rare genetic muscle diseases.
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Muscle atrophy is caused by a change in the balance between catabolic (protein breakdown) and anabolic (protein synthesis) signals that activate pro-inflammatory cytokine pathways that induce protein degradation or inhibit growth factor pathways that promote protein synthesis, respectively (see Figure 12 below). Genetic profiling of atrophic muscles has identified a group of E3 ligases that are upregulated upon induction of muscle atrophy. Of these, the muscle-specific E3 ligase MuRF1 has been shown to be upregulated in most in vivo models, as well as in clinical trials. Inhibiting MuRF1 expression diminishes the impact from the pro inflammatory factor side of the pathway and diminishes the growth-inhibiting effects of the growth factor pathway (see Figure 12 below). Furthermore, genetic ablation of MuRF1 in mice has been shown by third parties to render muscles partially resistant to muscle atrophy.
Figure 12: Pathways for the Induction of Muscle Atrophy
The prevalence of muscle atrophy is widespread, spanning multiple diseases and conditions. Cachexia, a muscle wasting syndrome caused by an underlying disease such as cancer, is estimated to affect 50% to 80% of all cancer patients, and contributes to a significant portion of all cancer deaths. Sarcopenia is another disease characterized by the involuntary loss of muscle, typically associated with the aging process. In the United States, sarcopenia is estimated to affect 5% to 13% of people aged 60 years to 70 years and up to 50% of people aged over 80 years.
Current Treatment Landscape and Limitations
Current treatments for muscle atrophy primarily focus on nutritional intake and physical exercise. Historically, attempts to develop a therapy addressing the underlying disease have included anti-inflammatory agents and drugs that either activate protein synthesis (including myostatin inhibitors) or inhibit protein degradation. None of these approaches have been successful in clinical trials. We believe that these approaches failed in clinical trials because they focused on single pathways and on the regulation of either catabolic or anabolic mechanisms. Muscle atrophy involves multiple pathways and the simultaneous activation and inhibition of catabolic and anabolic mechanisms, respectively. Contrary to previous attempts, by targeting E3 ligases such as MuRF1, we are regulating common effectors of both the catabolic and anabolic pathways involved in the induction of muscle atrophy.
Preclinical Data and Next Steps
In a commonly used model of muscle atrophy (denervation), pre-treatment of mice with an AOC comprised of the mouse mAb targeting TfR1 conjugated with an siRNA targeted against MuRF1 (at 6 mg/kg) showed a 54% sparing of muscle cross sectional area (CSA) on Day 28 after dosing (see left panel of Figure 13 below) and 35% sparing of weight (see right panel of Figure 13 below) on Day 17
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compared to mice treated with an AOC with a control siRNA. The results of this study replicate data from the same model in mice with MuRF1 genetically ablated.
Figure 13: Impact of Downregulation of MuRF1 on Denervation-Induced Muscle Atrophy in Mice
The duration of action of an siRNA against MuRF1 delivered as an AOC was observed to be prolonged in preclinical studies. After a single dose of 3 mg/kg of siRNA against MuRF1, we observed a greater than 50% reduction of MuRF1 mRNA in gastrocnemius skeletal muscle compared to control, which lasted longer than 20 weeks in the heart and even longer in skeletal muscle (see Figure 14 below).
Figure 14: Single 3 mg/kg Dose of siRNA Against MuRF1
Data are expressed as mean (SE) compared to saline controls.
We are currently in the process of selecting a product candidate to advance into clinical development. Following additional preparatory preclinical studies and regulatory clearance, we plan to advance our product candidate into a Phase 1 clinical trial in 2022. We plan to conduct our first clinical trial in healthy volunteers with a limb temporarily immobilized to induce muscle atrophy. In this trial, we plan to assess pre- and post-treatment measurements of MuRF1 expression, biomarkers and histological changes, and certain clinical measurements. We expect this trial to be of short duration as we believe that changes in MuRF1 expression can be observed within days of immobilization.
The strength and scope of emerging data over this period will inform our view on ideal indications to pursue and the most appropriate future development path for our muscle atrophy product candidate. Should we determine that our product candidate is best used for muscle atrophy associated with certain rare diseases, we will likely retain rights for later stage development and potential commercialization. Should we find that its utility is best served in diseases underpinned by large patient populations, we may elect to leverage the resources or specific expertise of another biopharmaceutical company via a strategic collaboration.
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Our Duchenne Muscular Dystrophy (DMD) Programs
We are developing AOCs to treat the underlying cause of DMD. DMD is caused by mutations in the gene that encodes for dystrophin, a protein critical for the normal function of muscle cells. The oligonucleotides in our AOCs are designed to promote the skipping of specific exons to allow the production of the dystrophin gene product. We are focusing our initial efforts on the development of AOCs for mutations amenable to skipping Exon 44, Exon 45 and Exon 51 and we intend to conjugate these individual oligonucleotides to our proprietary mAb targeting TfR1. In preclinical studies, we observed that treatment of an mdx mouse with an AOC caused a greater than 50-fold increase in exon skipping compared to an equimolar dose of the unconjugated oligonucleotide. In 2022, following regulatory clearance, we plan to commence a clinical trial.
Disease Overview
DMD is a monogenic, X-linked, recessive disease caused by mutations in the gene that encodes for dystrophin. DMD almost exclusively occurs in boys and is progressive, irreversible and ultimately fatal. In DMD patients, mutations in the affected gene hinder the production of normal levels of dystrophin protein, which is needed to maintain the integrity of muscle fibers. Dystrophin protein acts as a shock absorber through its role as the foundation of the dystrophin associated glycoprotein complex (DAPC), a group of proteins that connects the inner and outer elements of muscle cells to ensure proper muscle function. The absence of functional dystrophin leads to stresses and tears of muscle cell membranes, resulting in muscle cell death and the progressive loss of muscle function.
For patients suffering from DMD, symptoms usually begin to manifest between three and five years of age. Affected boys fail to reach developmental milestones or experience motor function challenges, such as difficulty walking or climbing stairs. Muscle wasting initially presents in the legs and pelvic area and later affects the muscles of the shoulders, neck and arms. As the disease progresses, patients with DMD fall frequently, can no longer run, play sports or perform most daily functions, and are further weakened by physical activity. By their early teens, DMD patients typically lose their ability to walk and become dependent on a wheelchair for mobility. By their twenties, patients essentially become paralyzed from the neck down and require a ventilator to breathe. Though disease severity and life expectancy vary, a patients quality of life dramatically decreases over time, and death typically occurs by early adulthood from either cardiac or respiratory complications.
DMD occurs in approximately one in every 3,500 to 5,000 live male births and is estimated to affect 10,000 to 15,000 people in the United States. The estimated prevalence of DMD in the European Union is similar to or higher than that in the United States. A global database analysis characterized over 7,000 genetic mutations that cause DMD. Exons 44, 45 and 51 represent approximately 30% of the total mutations observed in DMD that are amenable to skipping (see Figure 15 below).
Figure 15: Overview of DMD Exons Amenable to Skipping
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Current Treatment Landscape and Limitations
Currently patients with DMD are treated with corticosteroids to manage the inflammatory component of the disease. There are two approved unconjugated phosphorodiamidate morpholino oligomer (PMO)-based oligonucleotide therapies, each addressing a specific mutationeteplirsen approved for DMD patients amenable to Exon 51 skipping and golodirsen for the treatment of DMD patients amenable to Exon 53 skipping. However, both drugs, in addition to requiring weekly intravenous infusions, have demonstrated a less than 1% mean increase in dystrophin in clinical trials. The FDA approved labels for both drugs state that a clinical benefit has not yet been established and continued approval may be contingent upon the verification of such clinical benefit in confirmatory clinical trials. Ataluren is a small molecule drug, conditionally approved in the European Union, Iceland and South Korea for non-sense mutations in DMD in ambulatory patients aged five years and older. However, in multiple clinical trials, ataluren failed to meet the both the primary endpoint of improvements in the six-minute walk test, as well as additional secondary outcome measures. The FDA issued a complete response letter for ataluren in October 2017, requesting additional evidence of effectiveness. Additional approaches currently in clinical development include peptide-conjugated PMO-based oligonucleotides (PPMOs) and gene therapy.
Our Solution
Our initial development efforts in DMD are focused on AOCs based on PMOs that can induce exon skipping specifically for Exons 44, 45 and 51 conjugated to our proprietary mAb targeting TfR1. We believe that our AOCs have the potential to increase the production of dystrophin in DMD patients for two reasons. First, because of recent advances in the understanding of the splicing process and placement of skipping agents on pre-mRNA described in published literature and based on these advances, we have screened for and identified PMOs with optimized skipping activity. Second, the mAb targeting TfR1 allows for more efficient delivery to muscle cells, therefore allowing for better uptake of the PMO. In preclinical studies, we also observed that our TfR1-based AOCs induced exon skipping in cardiac muscle, which we believe may address some of the cardiomyopathies in patients with DMD, a key complication of the disease. Based on their mechanism of action, we believe that our AOCs could have utility in several additional DMD mutations beyond these first three.
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Preclinical Data and Next Steps
In an mdx mouse model of DMD, a widely accepted mouse model in DMD, we observed that conjugating an oligonucleotide designed to bind to a specific exon can induce exon skipping and production of dystrophin protein more efficiently than unconjugated oligonucleotides. Following treatment with a single 8mg/kg dose of a mouse Exon 23-targeting PMO conjugated to a mouse-specific-mAb targeting TfR1, we observed an approximately 50-fold increase in the degree of splice switching as compared to an equimolar dose of the unconjugated PMO (see Figure 16 below).
Figure 16: AOC Treatment Exon Skipping
Compared to an Unconjugated Oligonucleotide in Mouse DMD Model
In the gastrocnemius of mdx mice treated with varying doses of the AOC, we observed near-maximum benefit at concentrations of approximately 50-100 nM, providing us with a framework for establishing target concentration in clinical trials (see Figure 17 below). We further observed that administering the PMO conjugated to a control non-binding mAb failed to increase splice skipping to the same degree as conjugating the same oligonucleotide to the mAb targeting TfR1 (see Figure 17 below), despite achieving concentrations of PMO in the muscle in the active range of 50-100 nM. The absence of meaningful skipping with a non-targeting mAb demonstrated that non-specific uptake is inefficient compared to receptor-mediated uptake associated with the mAb targeting TfR1. We have also observed that TfR1-based AOCs induce exon skipping in cardiac muscle, which we believe may address some of the cardiomyopathies in patients with DMD.
Figure 17: Exon Skipping versus Concentration After Treatment
with a TfR1 mAb AOC or Control mAb AOC
The PMO conjugated to a non-targeting mAb (black square) allowed for uptake into muscle, but skipping was substantially less compared to the TfR1 targeted AOC.
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In a preclinical study of human primary myocytes incubated with two different unconjugated PMOs (44 Seq 5 and 44 Seq 7), we observed substantial skipping of Exon 44 of dystrophin (see Figure 18 below).
Figure 18: Dystrophin Skipping with Lead Candidates for Exon 44
Our Facioscapulohumeral Muscular Dystrophy (FSHD) Program
FSHD is one of the most common forms of muscular dystrophy and affects both sexes equally, with onset typically in teenage and young adult years. FSHD is characterized by progressive skeletal muscle loss that initially causes weakness in muscles in the face, shoulders, arms and trunk and progresses to weakness in muscles in lower extremities and the pelvic girdle. FSHD is caused by aberrant expression of a gene, double homeobox 4 (DUX4), in adult skeletal muscle. DUX4 is the major molecular signature that distinguishes muscle tissue affected by FSHD from healthy muscle.
The FSH Society estimated FSHD affects approximately one in 20,000 people in the United States. A recent study conducted in the Netherlands reported a more frequent prevalence of one in 8,333 people. We believe that the patient population is between 16,000 to 38,000 in the United States. As is typical in diseases with no approved therapies, we believe that these patient population estimates are conservative. Losmapimod is a p38 MAPK inhibitor, which may modulate DUX4 expression, and is being evaluated in a Phase 2 clinical trial by a third party. Creatine monohydrate, a supplement that enhances muscle performance, is also being evaluated in a Phase 2 clinical trial by a third party. Our therapeutic strategy in FSHD is to use an AOC based on our proprietary mAb that targets TfR1 to deliver an siRNA targeted to the DUX4 mRNA. In preclinical models, we observed siRNA-mediated DUX4 silencing in FSHD patient-derived muscle cells.
Our Pompe Disease Program
Pompe disease is a rare, autosomal recessive lysosomal storage disease caused by a mutation in the gene that encodes for glucosidase alpha acid (GAA) that results in the buildup of glycogen in the bodys cells. The accumulation of glycogen in certain organs and tissues, especially muscles, impairs normal tissue and organ function. Patients with Pompe disease experience serious muscle-related problems, including progressive muscle weakness, especially in the legs, trunk and diaphragm. As the disorder progresses, breathing problems can lead to respiratory failure. To date, more than 300 mutations have been identified in GAA that are pathogenic in nature. In general, GAA enzyme activity correlates with the age of onset and rate of progression. Pompe disease affects an estimated one in 40,000 people in the United States, ranging from one in 14,000 in African Americans to one in 100,000 in individuals of European decent. Pompe disease is estimated to affect between 5,000 and 10,000 patients worldwide.
The only approved therapy for Pompe disease is Lumizyme, a form of enzyme replacement therapy (ERT), known as Myozyme outside of the United States, which is delivered by bi-weekly
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intravenous infusion. However, ERT does not adequately address the breakdown of muscle tissue associated with the disease. We are also aware of gene therapies in clinical development designed to increase GAA levels in patients.
Our program in Pompe disease utilizes an AOC based on our mAb that targets TfR1 to deliver an siRNA targeting the mRNA encoding glycogen synthetase 1 (GSY1), a protein required for the synthesis of glycogen in muscle. Reducing glycogen synthesis in muscle will reduce the toxic accumulation of glycogen in the disease. We believe that an siRNA-based approach is well suited to the treatment of Pompe disease because of the ability to specifically inhibit GSY1 and not the closely related liver form of the enzyme, glycogen synthetase 2, the latter being critical to glucose regulation in the body. We believe that our approach to address the breakdown of muscle tissue associated with Pompe disease may be complementary to ERT.
Opportunities in Immunology and Other Areas
We intend to pursue the development of AOCs in other tissue and cell types, including immune cells. In the field of immunology, we believe AOCs have the potential to target a broader set of cell types and diseases than traditional oligonucleotide therapies. We believe oligonucleotide therapies have the potential to address the challenges of immune responses at the RNA level; however, the ability to modulate immune responses has been hampered by the inappropriate delivery of these agents to immune cells. By identifying and optimizing antibodies for specific immune cells, our goal is to leverage our AOC platform to develop product candidates that can deliver siRNAs to disease-driving subsets of immune cells.
In studies designed to explore AOCs in immuno-oncology, we observed significant AOC-mediated mRNA reduction in CD8+ tumor infiltrating lymphocytes (TILs) in vivo in the syngeneic CT-26 tumor model with an intravenous dose of 6 mg/kg siRNA. However, we observed that the AOCs had no effect on the mRNA levels in T or B cells in the spleen (see Figure 19 below), suggesting that activity can be limited to only the cell populations involved in immune-responses to tumors without affecting lymphocytes outside the tumor. We believe this specificity was driven by the fact that the AOC employed our mAb targeting TfR1, and TfR1 is over expressed only on activated lymphocytes. We also observed significant AOC-mediated mRNA reduction in CD4+ TILs and T-regs from mice treated with an AOC comprised of a mAb targeting TfR1 and an siRNA targeting SHP2.
Figure 19: Target mRNA Levels in CD8+ TILs, Splenic T Cells and Splenic B Cells from Mice Treated in vivo with an AOC
We have also identified a mAb that binds to macrophages specifically, and when conjugated with an siRNA, produces reduction in levels of the target mRNA in that cell both in vitro and in vivo. We believe this finding supports the development of AOCs for diseases where macrophages play a
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significant role, like autoimmune disorders. We are in the process of generating data to demonstrate the pharmacologic effects of siRNA reduction in animal models of immune disorders, which will help inform our future development plans. Our internal efforts are focused on finding additional surface protein-mAb pairs and demonstrating reduction in the expression of key targets in subsets of immune cells. As we identify appropriate product candidates in immunology, we may choose to advance these on our own or seek a strategic collaborator based on the nature of potential indications. Our findings in immunology served as one of the key bases of our collaboration with Lilly who has access to a defined set of up to six mRNA targets initially in immunology and other select indications on a worldwide basis.
Beyond immune cells, we plan to continue to invest in our AOC platform to explore the full potential of our AOCs in additional previously inaccessible tissue and cell types. Our goal is to discover, develop and commercialize novel AOC therapeutics that overcome current barriers to the delivery of oligonucleotides and unlock their potential to treat a wide range of serious diseases currently lacking adequate treatment options.
Manufacturing
We do not own or operate manufacturing facilities. We currently rely on third-party manufacturers and suppliers for the antibodies, oligonucleotides and linkers used to make our AOCs, and we expect to continue to do so to meet our preclinical, clinical and commercial activities. Our third-party manufacturers are required to manufacture our product candidates under current Good Manufacturing Practice (cGMP) requirements and other applicable laws and regulations. We believe there are multiple sources for all of the materials required for the manufacture of our product candidates.
Competition
The biotechnology and biopharmaceutical industries are characterized by rapid technological advancement, significant competition and an emphasis on intellectual property. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies, and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with current therapies and new therapies that may become available in the future.
With respect to AOC 1001, there are currently no approved therapies to treat the underlying cause of DM1. Products currently in development to treat DM1 include: tideglusib, a GSK3-ß inhibitor in late-stage clinical development by AMO Pharma for the congenital phenotype of DM1; ERX-963, which is in early clinical development by Expansion Therapeutics, Inc. for the treatment of excessive daytime sleepiness in DM1; AT466, which is an AAV-antisense candidate in preclinical development by Audentes Therapeutics, Inc.; and an antibody linked oligonucleotide in preclinical development by Dyne Therapeutics Inc.
Current treatments for muscle atrophy are primarily focused on nutritional intake and physical exercise. Other products in developments for muscle atrophy in cachexia include: adlumiz and AEZS-130, which are ghrelin agonists in a Phase 3 clinical trial by Helsinn Healthcare SA and a Phase 2 trial by Aeterna Zentaris Inc., respectively; GSK2881078, an androgen receptor modulator in Phase 2 clinical in development by GlaxoSmithKline plc; NGM120, a GSF15 inhibitor by NGM Biopharmaceuticals Inc.; and PF-06946860 in Phase 1 clinical development by Pfizer Inc.
Currently patients with DMD are treated with corticosteroids to manage the inflammatory component of the disease. Deflazacort is an FDA approved corticosteroid marketed by PTC Therapeutics, Inc. In addition, there are two FDA approved exon skipping drugs marketed by Sarepta Therapeutics, Inc.: Eteplirsen, an unconjugated PMO approved for DMD patients amendable to
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skipping Exon 51; and golodirsen for the treatment of DMD patients amenable to skipping Exon 53. Companies focused on developing treatments for DMD that target dystrophin mechanisms, as does our DMD program, include Sarepta Therapeutics with SRP-5051, a PPMO currently being evaluated in a Phase 2 clinical trial for patients amenable to Exon 51 skipping 51, and PTC Therapeutics with ataluren, a small molecule targeting nonsense mutations in a Phase 3 clinical trial. In addition, several companies are developing gene therapies, including Milo Biotechnology (AAV1-FS344), Pfizer (PF-06939926), Sarepta Therapeutics (SRP-9001 and Galgt2 gene therapy program), and Solid Biosciences Inc. (SGT-001). We are also aware of several companies targeting non-dystrophin mechanisms for the treatment of DMD.
There are currently no therapies to treat the underlying cause of FSHD. Products currently in development to treat FSHD include: creatine monohydrate, a supplement that enhances muscle performance, which is being evaluated in a Phase 2 clinical trial by Murdoch Childrens Research Institute, and losmapimod, a p38 MAPK inhibitor that may modulate DUX4 expression, which is being evaluated in a Phase 2 clinical trial by Fulcrum Therapeutics Inc. The only approved therapy for Pompe disease is Lumizyme (known as Myozyme outside of the United States), an ERT delivered by bi-weekly intravenous infusion, and marketed by Sanofi Genzyme. We are aware of multiple ERT therapies in clinical development, including AT-GAA, which uses a pharmacological chaperone, in a Phase 3 clinical trial by Amicus Therapeutics, Inc., and neoGAA in a Phase 3 clinical trial by Sanofi Genzyme. In addition, several companies are developing gene therapies, including Actus Therapeutics, Inc. ( ACTUS101), Asklepios BioPharmaceutical, Inc. (AAV2/8-LSPhGAA), Audentes Therapeutics (AT845) and Spark Therapeutics, Inc. (SPK-3006).
We will also compete more generally with other companies developing alternative scientific and technological approaches, including other companies working to develop conjugates with oligonucleotides for extra-hepatic delivery, including Alnylam Pharmaceuticals, Aro Biotherapeutics, Arrowhead Therapeutics, Dyne Therapeutics, Ionis Pharmaceuticals and Sarepta Therapeutics, as well as gene therapy and CRISPR approaches.
Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical and human resources than we do. Accordingly, our competitors may be more successful than us in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining approval for treatments and achieving widespread market acceptance, rendering our treatments obsolete or non-competitive. Merger and acquisition activity in the biotechnology and biopharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These companies also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials and acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity could be substantially limited if our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or less expensive than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of the entry of our products. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of other drugs. The key competitive factors affecting the success of our programs are likely to be their efficacy, safety profile, convenience, level of promotional activity, intellectual property protection and availability of reimbursement.
Intellectual Property
We strive to protect our product candidates and our AOC product platform through a variety of methods, including seeking and maintaining patents intended to cover our AOC product platform, our
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products and compositions, their methods of use and processes for their manufacture, and any other inventions that are commercially important to the development of our business. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position. We also rely on trade secrets and know-how that may be important to the development of our business. We seek to obtain domestic and international patent protection and endeavor to promptly file patent applications for new commercially valuable inventions to expand our intellectual property portfolio.
We believe that we have a significant global intellectual property position and substantial know-how relating to our AOC product candidates and our technology platform. As of March 31, 2020, our intellectual property portfolio consisted of two issued U.S. patents and over 20 pending U.S. patent applications that we own. In addition, we have an exclusive option to an exclusive license to certain patent rights from the University of Alberta. Collectively, these patent rights relate to various aspects of our AOC product candidates and technology platform. In addition to filing and prosecuting patent applications in the United States, we often file counterpart patent applications in additional countries where we believe such foreign filing is likely to be beneficial, including Australia, Canada, China, Europe, Hong Kong, Israel, Japan, Mexico, Singapore, and South Korea.
We continually assess and refine our intellectual property strategy as we develop new product candidates and platform technologies. To that end, we are prepared to file additional patent applications in any appropriate fields if our intellectual property strategy requires such filings, or where we seek to adapt to competition or seize business opportunities. Further, we are prepared to file patent applications, as we consider appropriate under the circumstances, relating to the new technologies that we develop.
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 we may own or license in the future, nor can we be sure that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology. Please see Risk FactorsRisks Related to Our Intellectual Property for additional information on the risks associated with our intellectual property strategy and portfolio.
Intellectual Property Relating to AOC 1001
With regard to AOC 1001, as of March 31, 2020, we owned two pending U.S. patent applications and one pending international patent application. These patent rights relate to AOC 1001 composition of matter, formulations containing AOC 1001, methods of manufacturing, and methods of treating diseases, using AOC 1001. Any patents issued from these applications are expected to expire in 2038-2041, however, a patent term extension may be available.
Intellectual Property Relating to Our DMD AOC Product Candidates
With regard to our DMD AOC product candidates, as of March 31, 2020, we owned three pending U.S. patent applications, one pending international patent application, and 19 pending patent applications in various countries and regions including Australia, Canada, China, Europe, Hong Kong, Israel, Japan, Mexico, Singapore, and South Korea. These patent rights relate to the DMD AOCs composition of matter, formulations containing the DMD AOCs, methods of manufacturing, and methods of treating diseases, using our DMD AOCs. Any patents issued from these applications are expected to expire in 2038; however, a patent term extension may be available.
Intellectual Property Relating to Our Muscle Atrophy AOC Product Candidate
With regard to our muscle atrophy AOC product candidate, as of March 31, 2020 we owned one pending U.S. patent application and one pending international patent application. These patent rights
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relate to the muscle atrophy AOC composition of matter, formulations containing the muscle atrophy AOC, methods of manufacturing, and methods of treating diseases, using our muscle atrophy AOC. Any patents issued from these applications are expected to expire in 2038; however, a patent term extension may be available.
Intellectual Property Relating to Our FSHD AOC Product Candidate
With regard to our FSHD AOC product candidate, as of March 31, 2020 we owned one pending U.S. patent application. These patent rights relate to the FSHD AOC composition of matter, formulations containing the FSHD AOC, methods of manufacturing, and methods of treating diseases, using our FSHD AOC. Any patents issued from these applications are expected to expire in 2041; however, a patent term extension may be available.
Intellectual Property Relating to Our AOC Product Platform
As of March 31, 2020, we owned 14 families of U.S. and foreign patents and patent applications covering our AOC product platform. These families include two issued U.S. patents, 17 pending U.S. patent applications, one international patent application and 16 foreign patent applications relating to key aspects and components of our AOC product platform systems. Our patent applications contain claims covering (i) proprietary antibodies; (ii) proprietary oligonucleotide chemical structures; (iii) proprietary oligonucleotide sequences; (iv) proprietary AOC structures; and (v) methods for manufacturing and using our AOC technologies. The issued U.S. patents and any U.S. patents issuing from our pending U.S. patent applications are expected to expire between 2037 and 2040.
The term of individual patents depends upon the laws of the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing of a non-provisional patent application. However, the term of United States patents may be extended for delays incurred due to compliance with the FDA requirements or by delays encountered during prosecution that are caused by the United States Patent and Trademark Office (USPTO). For example, for drugs that are regulated by the FDA under the Hatch-Waxman Act, it is permitted to extend the term of a patent that covers such drug for up to five years beyond the normal expiration date of the patent. In the future, if and when our biopharmaceutical product candidates receive FDA approval, we expect to apply for patent term extensions on patents covering those product candidates. We intend to seek patent term extensions to any of our issued patents in any jurisdiction where these are available; however, there is no guarantee that the applicable authorities, including the USPTO and FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2038 to 2041, unless we receive patent term extension or patent term adjustment, or both.
However, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the field of oligonucleotide therapy has emerged in the United States. The patent situation outside of the United States is even more uncertain. Changes in the patent laws and rules, either by legislation, judicial decisions, or regulatory interpretation in the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, importing or otherwise commercializing any of our patented inventions, either
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directly or indirectly, will depend in part on our success in obtaining, defending and enforcing patent claims that cover our technology, inventions, and improvements. With respect to both licensed and company-owned intellectual property, 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 platform and product candidates and the methods used to manufacture them. Moreover, our issued patents and those that may issue in the future may not guarantee us the right to practice our technology in relation to the commercialization of our platforms product candidates. The area of patent and other intellectual property rights in biotechnology is an evolving one with many risks and uncertainties, and third parties may have blocking patents that could be used to prevent us from commercializing our AOC product platform and product candidates and practicing our proprietary technology. Our issued patents and those that may issue in the future may be challenged, narrowed, circumvented or invalidated, which could limit our ability to stop competitors from marketing related platforms or product candidates or limit the length of the term of patent protection that we may have for our AOC product platform and product candidates. In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we may have competition for our AOC product platform and product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before any product candidate can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent. For this and other risks related to our proprietary technology, inventions, improvements, platforms and product candidates, please see the section entitled Risk FactorsRisks Related to Our Intellectual Property.
We intend to file applications for trademark registrations in connection with our product candidates in various jurisdictions, including the United States. We have filed for trademark protection of the Avidity Biosciences mark with the United States Patent and Trademark Office and foreign patent and trademark organizations.
We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our confidential and proprietary information as trade secrets, including through contractual means with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements under the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the individuals relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In many cases our confidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and other advisors require them to assign or grant us licenses to inventions they invent as a result of the work or services they render under such agreements or grant us an option to negotiate a license to use such inventions. Despite these efforts, we cannot provide any assurances that all such agreements have been duly executed, and any of these parties may breach the agreements and disclose our proprietary information, and we may not be able to obtain adequate remedies for such breaches.
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We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. To the extent that our employees, contractors, consultants, collaborators and advisors use intellectual property owned by others in their work for us, disputes may arise as to the rights in relation to the resulting know-how or inventions. For more information, please see the section entitled Risk FactorsRisks Related to Our Intellectual Property.
Research Collaboration and License Agreement with Lilly
In April 2019, we entered into the Lilly Agreement with Lilly for the discovery, development and commercialization of antibody-oligonucleotide conjugate products (Products) in immunology and other select indications on a worldwide basis. Under the Lilly Agreement, the parties will collaborate on preclinical research and discovery activities for Products and Lilly will be responsible for funding the cost of preclinical research and discovery activities of both parties for all Products. Lilly will lead the clinical development, regulatory approval and commercialization of all Products, at Lillys sole cost.
Under the Lilly Agreement, we granted Lilly an exclusive, worldwide, royalty-bearing license under our technology to research, develop, manufacture, and sell Products directed to up to six mRNA targets. Lilly has the right to sublicense its rights under the Lilly Agreement subject to certain conditions. Lilly granted us a non-exclusive license under certain Lilly technology solely to conduct research under the Lilly Agreement. We retain the right to use our technology to perform our obligations under the Lilly Agreement and for all purposes not granted to Lilly. We agreed that we will not, ourselves or with a third party, research, develop, manufacture or commercialize or otherwise exploit any compound or product directed against targets subject to the collaboration.
Lilly paid us an upfront license fee of $20.0 million, and we are eligible to receive up to an aggregate of $405 million per Product in development, regulatory and commercialization milestone payments. In addition, Lilly is obligated to pay us a tiered royalty ranging from the mid-single to low-double digits on worldwide annual net sales of licensed Products, subject to specified and capped reductions for the market entry of biosimilar products, loss of patent coverage of licensed Products and for payments owed to third parties for additional rights necessary to commercialize licensed Products in the territory. Lillys royalty obligations and the Lilly Agreement will expire on a licensed Product-by-licensed Product and country-by-country basis on the later of ten years from the date of the first commercial sale or when there is no longer a valid patent claim covering such licensed Product in such country.
The Lilly Agreement may be terminated either by us or Lilly in the event of an uncured material breach by the other party. Lilly may terminate the Lilly Agreement on a target-by-target basis or in its entirety without cause, subject to certain limitations, including that Lilly may not terminate the Lilly Agreement on a target-by-target basis within the first three years of the effective date of the Lilly Agreement if doing so would reduce the number of Products subject to the collaboration to fewer than a certain number. In the event either party commences a legal action challenging the validity or enforceability of any licensed patents, the other party will have the right to terminate the Lilly Agreement with respect to the challenged patents.
The Lilly Agreement includes various representations, warranties, covenants, dispute resolution mechanisms, indemnities and other provisions customary for transactions of this nature.
Concurrently with the Lilly Agreement, we issued a convertible promissory note to Lilly (the Lilly Note), and received cash proceeds of $15.0 million. The Lilly Note accrued simple interest of 8.0% per annum and converted into shares of our Series C convertible preferred stock in November 2019.
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Government Regulation
Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application (NDA) process before it may be legally marketed in the United States.
We believe our AOC product candidates may be subject to regulation in the United States as combination products. If marketed individually, each component of our product candidates would be subject to different regulatory pathways and would require approval of independent marketing applications by the FDA. A combination product, however, is assigned to an FDA center that will have primary jurisdiction over its regulation based on a determination of the combination products primary mode of action, which is the single mode of action that provides the most important therapeutic effect. In the case of our AOC product candidates, we believe that the primary mode of action is attributable to the drug component of the product. Accordingly, we believe the FDAs Center for Drug Evaluation and Research (CDER), will have primary jurisdiction over premarket development of our product candidates. We expect to seek approval of AOC 1001 and each of our other AOC product candidates through submission of a single NDA reviewed by CDER, and we do not expect that the FDA will require a separate marketing authorization for each constituent of AOC 1001 or our other AOC product candidates.
U.S. Drug Development Process
In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (the FDCA) and its implementing 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. These sanctions could include the FDAs refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
● | completion of preclinical laboratory tests, animal studies and formulation studies in accordance with Good Laboratory Practice (GLP) regulations and other applicable regulations; |
● | submission to the FDA of an IND, which must become effective before human clinical trials may begin; |
● | approval by an independent institutional review board (IRB) at each clinical site before each trial may be initiated; |
● | performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice (GCP) requirements to establish the safety and efficacy of the proposed drug for its intended use; |
● | submission to the FDA of an NDA after completion of all pivotal trials; |
● | satisfactory completion of an FDA advisory committee review, if applicable; |
● | satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current GMP (cGMP) requirements to assure |
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that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity, and of selected clinical investigation sites to assess compliance with GCP; and |
● | FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. |
Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The sponsor will also include a protocol detailing, among other things, the objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about ongoing or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of one or more qualified investigators in accordance with GCP regulations, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. They must be conducted under protocols detailing, among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND as well as any subsequent protocol amendments, and timely safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. An IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
● | Phase 1: The product candidate is initially introduced into healthy human volunteers and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness. In the case of some products for severe or life-threatening diseases, such as cancer, 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 product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and appropriate dosage. Multiple Phase 2 trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 trials. |
● | Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further |
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test for safety in an expanded patient population, generally at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide, if appropriate, an adequate basis for product approval and labeling. |
Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
The FDA or the sponsor may suspend 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. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug.
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 and 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 product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
There are also requirements governing the reporting of ongoing clinical trials and completed trial results to public registries. Sponsors of certain clinical trials of FDA-regulated products are required to register and disclose specified clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.
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NDA Review and Approval Process
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical and other non-clinical 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 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. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.
The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the products identity, strength, quality and purity. Under the Prescription Drug User Fee Act (PDUFA) guidelines that are currently in effect, the FDA has a goal of ten months from the date of filing of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a filing decision after it the application is submitted. The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides 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 facility or facilities where the product is manufactured. The FDA will not approve an application 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 trial sites to assure compliance with GCP requirements. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional pivotal Phase 3 trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a Complete Response Letter is issued, the sponsor must resubmit the NDA or, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval.
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. In addition, the FDA may require a sponsor to conduct Phase 4
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testing, which involves clinical trials designed to further assess a drugs safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized. The FDA may also place other conditions on approval including the requirement for a risk evaluation and mitigation strategy (REMS) 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. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Marketing approval may be withdrawn for non-compliance with regulatory requirements or if problems occur following initial marketing.
In addition, the Pediatric Research Equity Act (PREA) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.
Expedited Development and Review Programs
A sponsor may seek approval of its product candidate under programs designed to expedite FDAs review and approval of new drugs and biological products that meet certain criteria. The FDA has a fast track designation 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. With regard 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.
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 treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for review of new molecular entity NDAs under its current PDUFA review goals.
In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life-threatening diseases or conditions may be eligible for 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
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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 receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. 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. FDA may withdraw approval of a drug or indication approved under accelerated approval on an expedited basis if, for example, the sponsor fails to conduct the required confirmatory trial or if such confirmatory trial fails to verify the predicted clinical benefit of the product.
The Food and Drug Administration Safety and Innovation Act established a category of drugs referred to as breakthrough therapies that may be eligible to receive breakthrough therapy designation. A sponsor may seek FDA designation of a product candidate as a breakthrough therapy if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. If the FDA designates a product as breakthrough therapy, it may 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 therapy; 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 considering alternative clinical trial designs when scientifically appropriate, which may result in smaller trials or more efficient trials that require less time to complete and may minimize the number of patients exposed to a potentially less efficacious treatment. The breakthrough therapy designation also includes all of the fast track program features, which means that the sponsor may file sections of the NDA for review on a rolling basis if certain conditions are satisfied, including an agreement with FDA on the proposed schedule for submission of portions of the application and the payment of applicable user fees before the FDA may initiate a review. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are met.
Fast track designation, priority review and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. We may explore some of these opportunities for our product candidates as appropriate.
Post-Approval Requirements
Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program fees for any marketed products. Drug manufacturers and their subcontractors 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, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and,
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depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical studies to assess new safety risks, or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
● | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
● | fines, warning letters, or untitled letters; |
● | clinical holds on clinical studies; |
● | refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals; |
● | product seizure or detention, or refusal to permit the import or export of products; |
● | consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; |
● | mandated modification of promotional materials and labeling and the issuance of corrective information; |
● | the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or |
● | injunctions or the imposition of civil or criminal penalties. |
In addition, the FDA closely regulates the marketing, labeling, advertising and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the products labeling and that differ from those tested by the manufacturer and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers communications on the subject of off-label use of their products.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation,
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the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
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 product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. However, competitors, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the approval of one of our product candidates for seven years if a competitor obtains approval of the same drug as defined by the FDA or if our product candidate is determined to be contained within the competitors product for the same indication or disease. In addition, if an orphan designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity.
Marketing Exclusivity
Market exclusivity provisions under the FDCA can delay the submission or the approval of certain 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 approve or even accept for review an abbreviated new drug application (ANDA) or an NDA submitted under Section 505(b)(2)(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 alternatively 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 to the approval of the application, for example 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 or 505(b)(2) NDAs 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 a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
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U.S. Healthcare Fraud and Abuse Laws and Compliance Requirements
In addition to FDA regulation of pharmaceutical products, U.S. federal and state healthcare laws and regulations restrict business practices in the pharmaceutical industry. These laws may impact, among other things, our current and future business operations, including our clinical research activities, and constrain the business or financial arrangements and relationships with healthcare providers and other parties. These laws include anti-kickback and false claims laws, civil monetary penalties laws, and physician payment transparency laws. In addition to the federal laws summarized below, we may also be subject to similar state and local laws and regulations that may apply to business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves.
The federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation.
The federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws prohibit, among other things, any individual or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act and the civil monetary penalties statute.
The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the healthcare fraud statute implemented under HIPAA or specific intent to violate it in order to have committed a violation.
The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (CMS) information related to payments or other transfers of value made during the previous year to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other health care providers beginning in 2022, and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held during the previous year by such health care providers as defined under statute and their immediate family members.
Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental
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third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local laws that require the registration of pharmaceutical sales representatives.
Violation of any of such laws or any other governmental regulations that apply may result in significant criminal, civil and administrative penalties including damages, fines, imprisonment, disgorgement, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.
U.S. Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidate for which we may seek regulatory approval. Sales in the United States will depend, in part, on the availability of sufficient coverage and adequate reimbursement from third-party payors, which include government health programs such as Medicare, Medicaid, TRICARE and the Veterans Administration, as well as managed care organizations and private health insurers. Prices at which we or our customers seek reimbursement for our product candidates can be subject to challenge, reduction or denial by third-party payors. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs.
The process for determining whether a third-party payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that the payor will pay for the product. In the United States, there is no uniform policy among payors for coverage or reimbursement. Decisions regarding whether to cover any of a product, the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies, but also have their own methods and approval processes. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that can require manufacturers to provide scientific and clinical support for the use of a product to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product that receives approval. Third-party payors may not consider our product candidates to be medically necessary or cost-effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development. Additionally, decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product.
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U.S. Healthcare Reform
In the United States, there has been, and continues to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the profitable sale of product candidates.
Among policy makers and payors in the United States, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the ACA) was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry. The ACA increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1%; required collection of rebates for drugs paid by Medicaid managed care organizations; required manufacturers to participate in a coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D; imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell certain branded prescription drugs to specified federal government programs, implemented a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected; expanded eligibility criteria for Medicaid programs; creates a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
There remain judicial and political challenges to certain aspects of the ACA. For example, the Tax Cuts and Jobs Act of 2017 (Tax Act) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the individual mandate. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit affirmed the District Courts decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall. It is unclear how such litigation, and other efforts to repeal and replace the ACA will impact the ACA.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the Bipartisan Budget Act of 2018, will remain in effect through 2029 unless additional Congressional action is taken. The CARES Act will suspend these Medicare sequester reductions from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
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Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. At the federal level, the current U.S. administrations budget proposal for the fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent principles for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. The Trump Administration previously released a Blueprint to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of pharmaceutical products paid by consumers. Although a number of these and other measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine which drugs and suppliers will be included in their healthcare programs Furthermore, there has been increased interest by third party payors and governmental authorities in reference pricing systems and publication of discounts and list prices.
Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union (EU) the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
To market a medicinal product in the European Economic Area (EEA) (which is comprised of the 28 Member States of the EU plus Norway, Iceland and Liechtenstein), we must obtain a Marketing Authorization (MA). There are two types of marketing authorizations:
● | the Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use of the EMA and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced therapy products, and medicinal products |
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containing a new active substance indicated for the treatment certain diseases, such as AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU; and |
● | National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. |
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Data and marketing exclusivity
In the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference product in the EU. The 10-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
Pediatric investigation plan
In the EEA, marketing authorization applications for new medicinal products not authorized have to include the results of studies conducted in the pediatric population, in compliance with a pediatric investigation plan (PIP) agreed with the EMAs Pediatric Committee (PDCO). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the EU and study results are included in the product information, even when negative, the product is eligible for six months supplementary protection certificate extension.
Clinical trials
Clinical trials of medicinal products in the European Union must be conducted in accordance with European Union and national regulations and the International Conference on Harmonization (ICH) guidelines on GCPs. Additional GCP guidelines from the European Commission, focusing in particular on traceability, apply to clinical trials of advanced therapy medicinal products. If the sponsor of the
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clinical trial is not established within the European Union, it must appoint an entity within the European Union to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU countries, the sponsor is liable to provide no fault compensation to any study subject injured in the clinical trial.
Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent authority, and a positive opinion from an independent ethics committee. The application for a clinical trial authorization must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. Currently, clinical trial authorization applications must be submitted to the competent authority in each EU Member State in which the trial will be conducted. Under the new Regulation on Clinical Trials, which is currently expected to take effect in 2019, there will be a centralized application procedure where one national authority takes the lead in reviewing the application and the other national authorities have only a limited involvement. Any substantial changes to the trial protocol or other information submitted with the clinical trial applications must be notified to or approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with cGMP. Other national and European Union-wide regulatory requirements also apply.
Data Privacy and Security Laws
We are subject to laws and regulations governing data privacy and the protection of health-related and other personal information. In the United States, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, impose certain requirements relating to the privacy, security and transmission of protected health information on HIPAA covered entities, which include certain healthcare providers, health plans and healthcare clearinghouses, and their business associates who conduct certain activities for or on their behalf involving protected health information. In addition, certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. For example, the California Consumer Privacy Act, or CCPA, which went into effect on January 1, 2020, gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability.
EU member states and other jurisdictions have also adopted data protection laws and regulations, which impose significant compliance obligations. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, processing and security of personal information that identifies or may be used to identify an individual, such as names, contact information, and sensitive personal data such as health data. These laws and regulations are subject to frequent revisions and differing interpretations, and have generally become more stringent over time.
As of May 25, 2018, Regulation 2016/676, known as the General Data Protection Regulation (GDPR) replaced the Data Protection Directive with respect to the processing of personal data in the European Union. The GDPR imposes many requirements for controllers and processors of personal data, including, for example, higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention and secondary use of information, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data and additional obligations when we contract third-party processors in connection with the processing of the personal data. The GDPR allows EU member states to make additional laws and
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regulations further limiting the processing of genetic, biometric or health data. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the EU member states may result in fines of up to 20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. Additionally, following the United Kingdoms withdrawal from the European Union, we will have to comply with the GDPR and the United Kingdom GDPR, each regime having the ability to fine up to the greater of 20 million/ £17.5 million or 4% of global turnover. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, for example around how data can lawfully be transferred between each jurisdiction, which exposes us to further compliance risk.
The challenges we could face under the GDPR may also apply to other jurisdictions outside the EU that adopt laws similar in construction to the GDPR or regulatory frameworks of equivalent complexity. For example, the CCPA has been characterized as the first GDPR-like privacy statute to be enacted in the United States because it mirrors a number of the key provisions in the GDPR. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States
Employees
As of March 31, 2020, we had 36 full-time employees, 18 of whom have a Ph.D. or M.D. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.
Facilities
We currently occupy approximately 8,561 square feet of office and laboratory space in La Jolla, California, under a lease that expires in 2021. We also have a month-to-month sublease for an additional 450 square feet within the same building.
We are in the process of negotiating a new lease to replace our current space for additional office and laboratory space with an expected occupancy in 2021. We believe that this new facility will meet our current and near-term needs and that suitable additional space will be available as and when needed.
Legal Proceedings
From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors.
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Executive Officers and Directors
The following table sets forth the name, age and position of each of our executive officers and directors as of March 31, 2020.
Name |
Age | Position | ||||
Executive Officers |
||||||
Sarah Boyce |
48 | President and Chief Executive Officer | ||||
Joseph Baroldi |
42 | Chief Operating Officer | ||||
Arthur A. Levin, Ph.D. |
66 | Chief Scientific Officer | ||||
Non-Employee Directors |
||||||
Troy Wilson, Ph.D., J.D. |
51 | Chairman of the Board of Directors | ||||
Todd Brady |
41 | Director | ||||
Noreen Henig, M.D. |
54 | Director | ||||
Edward Kaye, M.D. |
70 | Director | ||||
Michael Martin, Ph.D. |
46 | Director | ||||
Roderick Wong, M.D. |
43 | Director |
(1) | Member of the compensation committee |
(2) | Member of the audit committee |
(3) | Member of the nominating and corporate governance committee |
Executive Officers
Sarah Boyce has served as our President and Chief Executive Officer and as a member of our board of directors since October 2019. Prior to joining Avidity, she served as President and a member of the board of directors of Akcea Therapeutics, Inc. from April 2018 through September 2019, where she led the commercialization of the companys rare disease products. Ms. Boyce served as Chief Business Officer of Ionis Pharmaceuticals, Inc. from January 2015 to April 2018, and Vice President, Head of International Business Strategy and Operations at Forest Laboratories, Inc. from 2012 to 2014. She previously held various positions with Alexion Pharmaceuticals Inc., Novartis Group AG, Bayer AG and F. Hoffmann-La Roche AG. Ms. Boyce currently serves on the board of directors of Ligand Pharmaceuticals Incorporated. Ms. Boyce holds a B.S. in Microbiology from the University of Manchester, England. Ms. Boyces knowledge of our business, as well as her extensive development, commercial and executive management experience, contributed to our board of directors conclusion that she should serve as a director of our company.
Joseph Baroldi has served as our Chief Operating Officer since February 2020. Mr. Baroldi has over twenty years of experience in the life sciences industry. Most recently, Mr. Baroldi was Vice President of Business Development at Ionis Pharmaceuticals, Inc. from February 2009 to January 2020, where he held several roles of increasing responsibility over the last decade. Previously, Mr. Baroldi held several roles in strategic planning and scientific research at Hologic, Inc. (formerly Gen-Probe Inc.) from April 2005 to January 2009. Mr. Baroldi holds an M.B.A. from the Rady School of Management at the University of California, San Diego and a B.S. in Biological Sciences from the University of California, Irvine.
Arthur A. Levin, Ph.D., has served as our Chief Scientific Officer since October 2019, and prior to that as our Executive Vice President of Research and Development since January 2014. Dr. Levin has a combined three decades of experience in all aspects of drug development from discovery through drug registration and has played key roles in the development of numerous oligonucleotides. From April 2012 to January 2014, he served as Executive Vice President at miRagen Therapeutics, Inc. Prior
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to that, Dr. Levin held various senior management positions at Santaris Pharma A/S Corp. and Ionis Pharmaceuticals, Inc. Since September 2015, Dr. Levin has served as a member of the board of directors of Stoke Therapeutics, Inc. Dr. Levin holds a Ph.D. in Toxicology from the University of Rochester and a B.S. in Biology from Muhlenberg College.
Non-Employee Directors
Troy Wilson, Ph.D., J.D., is our co-founder and has served as a member of our board of directors since November 2012 and as Chairman since February 2019. Dr. Wilson served as our President and Chief Executive Officer from November 2012 to February 2019. He has been President and Chief Executive Officer and a member of the board of directors of Kura Oncology, Inc. since August 2014 and has served as a member of the board of directors of Puma Biotechnology, Inc. since October 2013. He has also served as Executive Chairman of the board of directors of Wellspring Biosciences, Inc., a privately-held biopharmaceutical company, since July 2012, and has served as the sole managing member of Wellspring Biosciences parent company, Araxes Pharma LLC, since May 2012. Previously, Dr. Wilson served as a director of Zosano Pharma Corporation from June 2014 to October 2019. He also served as President and Chief Executive Officer of Wellspring Biosciences and Araxes Pharma from July 2012 to March 2019, and as President and Chief Executive Officer and a member of the board of directors of Intellikine, Inc. Dr. Wilson holds a J.D. from New York University and a Ph.D. in Bioorganic Chemistry and a B.A. in Biophysics from the University of California, Berkeley. Dr. Wilsons knowledge of our business and his senior executive and board-level experience at biopharmaceutical companies contributed to our board of directors conclusion that he should serve as Chairman of our company.
Todd Brady has served on our board of directors since December 2016. Mr. Brady has served as the Director of Finance and Investments at Brace Pharma Capital, Inc., a healthcare-focused investment firm, since April 2014. He also serves as a director for Vero Biotech, LLC, Pipeline Therapeutics, Inc., and Tyrogenex, Inc., and formerly served as a director for Cocrystal Pharma, Inc. and as a board observer for Precision Biosciences Inc. and miRagen Therapeutics, Inc. Mr. Brady has an extensive and diverse background in capital markets, working in equity research, asset management, private equity and corporate banking. He holds an M.B.A. from the Schulich School of Business (York University) and is a Chartered Financial Analyst (CFA). Mr. Bradys extensive financial experience and service as a director of other biotechnology companies contributed to our board of directors conclusion that he should serve as a director of our company.
Noreen Henig, M.D., has served on our board of directors since August 2019. Since July 2018, Dr. Henig has served as the Chief Medical Officer of Breath Therapeutics GmbH, which is now Zambon SpA following an acquisition in July 2018. Previously, Dr. Henig served as the Chief Development Officer of ProQR Therapeutics N.V. where she oversaw preclinical and clinical drug development from March 2014 to November 2017. Before joining ProQR, Dr. Henig was Senior Director, Global Respiratory, from 2011 to 2014, and Director, Respiratory Therapeutics, from 2008 to 2011, at Gilead Sciences, Inc. Dr. Henigs specialties as a physician include pulmonary, critical care, allergy and immunology. Dr. Henig holds an M.D. with a distinction in immunology from the Albert Einstein College of Medicine of Yeshiva University and a B.A. from Yale University. She also completed training in internal medicine at the University of California, San Francisco and in pulmonary and critical care medicine at the University of Washington. Dr. Henigs drug development and clinical trial experience contributed to our board of directors conclusion that she should serve as a director of our company.
Edward M. Kaye, M.D., has served on our board of directors since August 2019. Dr. Kaye has served as the Chief Executive Officer and a member of the board of directors of Stoke Therapeutics Inc. since October 2017. Dr. Kaye joined Stoke from Sarepta Therapeutics, Inc. where he served as President and Chief Executive Officer from September 2016 to July 2017, Interim Chief Executive
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Officer from April 2015 to September 2016 and Chief Medical Officer from June 2011 to March 2017. From 2001 to 2007, Dr. Kaye served in various positions at Genzyme Corporation, including most recently as Group Vice President of Clinical Development. Previously, Dr. Kaye served as Chief of Biochemical Genetics at Childrens Hospital of Philadelphia, Chief of Neurology at St. Christophers Hospital for Children and as a member of the research staff at Massachusetts General Hospital and Tufts University Medical Center. Dr. Kaye currently serves as a Neurological Consultant at the Childrens Hospital of Boston. Dr. Kaye is also a member of the board of directors of Cytokinetics, Inc. Dr. Kaye holds an M.D. from the Loyola University Stritch School of Medicine and a B.S. in Biology/Chemistry from Loyola University. Dr. Kayes extensive leadership and clinical experience in the medical and biotechnology fields contributed to our board of directors conclusion that he should serve as a director of our company.
Michael Martin, Ph.D., has served on our board of directors since December 2016 and has been the President of Takeda Ventures, Inc., the corporate venture arm of Takeda Pharmaceutical Company Limited, since January 2017. He previously served as Senior Investment Director of Takeda Ventures from April 2015 to January 2017. Prior to joining Takeda Ventures, Dr. Martin was a member of Global Licensing and Business Development at Takeda Pharmaceutical Company Limited from October 2012 to April 2015, where he led efforts for sourcing and transacting technologies and early stage pipeline programs. He has also held executive and scientific roles with Intellikine Inc. (acquired by Takeda), TargeGen, Inc. (acquired by Sanofi-Aventis), Arena Pharmaceuticals, Inc. and Monsanto Corporation. Dr. Martin holds a Ph.D. in Medicinal Chemistry from University of Illinois, a M.S. in Analytical Chemistry from Saint Louis University and B.S. degrees in Chemistry and Mathematics from Saint Louis University. Dr. Martins extensive biotechnology investment and industry experience contributed to our board of directors conclusion that he should serve as a director of our company.
Roderick Wong, M.D., has served on our board of directors since November 2019. Dr. Wong has over fifteen years of healthcare investment experience. Since 2010, he has served as Managing Partner and Chief Investment Officer of RTW Investments, LP, a healthcare-centered investment firm. Prior to RTW Investments, Dr. Wong was a Managing Director and the Portfolio Manager for the Davidson Kempner Healthcare Funds. Previously, Dr. Wong held various healthcare investment and healthcare research roles at SAC Capital Company and Cowen & Company. Since July 2015, Dr. Wong has served as Chairman of the board of directors of Rocket Pharmaceuticals, Inc. Dr. Wong also previously served on the board of directors of Penwest Pharmaceuticals Co. He holds an M.D. from the University of Pennsylvania Medical School, an M.B.A. from Harvard Business School and a B.S. in Economics from Duke University. Dr. Wongs years of experience investing in the biopharmaceutical industry 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 six members. Our board of directors has determined that all of our directors, other than Ms. Boyce and Dr. Wilson, are independent directors in accordance with the listing requirements of the Nasdaq Global Market (Nasdaq). Nasdaqs 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 nor any of his or her 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 the 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
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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 directors whose terms then expire will be eligible for reelection until the third annual meeting following reelection. 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 their terms will expire at our first annual meeting of stockholders following this offering; |
● | the Class II directors will be , and their terms will expire at our second annual meeting of stockholders following this offering; and |
● | the Class III directors will be , 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 board of directors or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock then entitled to vote in an election of directors.
Board Leadership Structure
Our board of directors is currently led by our Chairman, Dr. Wilson. 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 of directors in recognition of the differences between the two roles. The chief executive officer is responsible for setting the strategic direction for our company and the day-to-day leadership and performance of our 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 our 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 our 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 of directors to understand our 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 and corporate governance committee manages risks associated with the independence of the board of directors, 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 of directors is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board of directors as a whole.
Board Committees and Independence
Our board of directors has established three standing committeesaudit, compensation and nominating and corporate governanceeach of which operates under a charter that has been approved by our board of directors.
Audit Committee
The audit committees main function is to oversee our accounting and financial reporting processes and the audits of our financial statements. This committees responsibilities include, among other things:
● | appointing 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 accounting 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 on a periodic basis, or as appropriate, any investment policy and recommending to our board of directors any changes to such investment policy; |
● | 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 , and . 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 Nasdaq. Our board of directors has determined that is an audit committee financial expert as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq listing standards. Our board of directors has determined each of , and is independent under the
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applicable rules of the SEC and Nasdaq. Upon the listing of our common stock on Nasdaq, the audit committee will operate under a written charter that satisfies the applicable standards of the SEC and Nasdaq.
Compensation Committee
Our compensation committee approves policies relating to compensation and benefits of our officers and employees. The compensation committee approves 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 approves the compensation of these officers based on such evaluations. The compensation committee also approves the issuance of stock options and other awards under our equity plans. 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 , and . serves as the chairperson of the committee. Our board of directors has determined that each of , and is independent under the applicable Nasdaq listing standards, is a non-employee director as defined in Rule 16b-3 promulgated under the Exchange Act. Upon the listing of our common stock on Nasdaq, 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 assisting our board of directors in discharging the board of directors responsibilities regarding the identification of qualified candidates to become board members, the selection of nominees for election as directors at our annual meetings of stockholders (or special meetings of stockholders at which directors are to be elected), and the selection of candidates to fill any vacancies on our board of directors and any committees thereof. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance policies, reporting and making recommendations to our board of directors concerning governance matters and oversight of the evaluation of our board of directors. The members of our nominating and corporate governance committee are , and . serves as the chairperson of the committee. Our board of directors has determined that each of , and is independent under the applicable Nasdaq listing standards. Upon the listing of our common stock on Nasdaq, 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 is currently, or has at any time been, one of our officers or employees. None of our executive officers currently serves, or has served during the past fiscal year, as a member of the board of directors or compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Board Diversity
Upon the closing 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
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members) for election or appointment, the nominating and corporate governance committee and the board of directors 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; |
● | 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; |
● | diversity of background and perspective, including, but not limited to, with respect to age, gender, race, place of residence and specialized experience; |
● | experience relevant to our business industry and with relevant social policy concerns; and |
● | relevant academic expertise or other proficiency in an area of our business operations. |
Currently, our board of directors evaluates, and following the closing 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 plan to adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which will be effective upon the closing of this offering. Upon the closing of this offering, our code of business conduct and ethics will be available under the Corporate Governance section of our website at www.aviditybiosciences.com. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of Nasdaq 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 Summary Compensation Table below, whom we refer to as our NEOs.
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 closing of this offering may differ materially from the currently planned programs summarized in this discussion.
Summary Compensation Table
The following table presents summary information regarding the total compensation that was awarded to, earned by or paid to our NEOs for services rendered during the year ended December 31, 2019.
Name and principal position |
Year | Salary ($) |
Bonus ($) |
Stock awards ($) |
Option awards ($)(1) |
Non-equity incentive plan compensation ($)(2) |
All other compensation ($)(3) |
Total ($) |
||||||||||||||||||||||||
Sarah Boyce |
2019 | 103,512 | | | 4,295,649 | 50,630 | 117 | 4,449,908 | ||||||||||||||||||||||||
President and Chief Executive Officer |
||||||||||||||||||||||||||||||||
Troy Wilson, Ph.D.(4) |
2019 | 348,935 | | | | 140,000 | 64,671 | 553,606 | ||||||||||||||||||||||||
Former Chief Executive Officer; Chairman |
||||||||||||||||||||||||||||||||
Arthur A. Levin, Ph.D. |
2019 | 394,311 | | | | 148,000 | 702 | 543,013 | ||||||||||||||||||||||||
Chief Scientific Officer |
||||||||||||||||||||||||||||||||
P. Kent Hawryluk(5) |
2019 | 287,219 | | | 5,612 | 85,000 | 420,924 | 798,755 | ||||||||||||||||||||||||
Former Chief Business Officer |
(1) | Represents the grant date fair value of stock options to purchase shares of our common stock computed in accordance with Financial Accounting Standards Board (FASB) ASC 718. See Note 8 to our audited financial statements included elsewhere in this prospectus for a description of the assumptions used in valuing our stock options. |
(2) | Represents annual bonuses for 2019 paid in early 2020 under our annual bonus plan, as described below. |
(3) | Includes life insurance premiums for all of our NEOs. For Mr. Hawryluk, also includes (a) $380,792 in severance paid to him in early 2020 pursuant to his release agreement and (b) $39,430 representing accrued but unused vacation payout. For Dr. Wilson, also includes (a) a $10,175 car allowance, (b) $23,045 representing accrued but unused vacation payout and (c) and $30,866 paid as a retainer for his service as Chairman following his termination of employment. |
(4) | Dr. Wilson ceased serving as our Chief Executive Officer on October 7, 2019, at which time he transitioned to the role of non-employee Chairman. Dr. Wilsons salary reflects his salary as Chief Executive Officer from January 1, 2019 through October 6, 2019. |
(5) | Mr. Hawryluks employment terminated on December 19, 2019. |
Narrative Disclosure to Compensation Tables
The primary elements of compensation for our NEOs are base salary, annual performance bonuses and equity awards. The NEOs also participate in employee benefit plans and programs that we offer to our other employees, as described below.
Annual Base Salary
We pay our NEOs a base salary to compensate them for the satisfactory performance of services rendered to us. The base salary payable to each NEO is intended to provide a fixed component of
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compensation reflecting the executives skill set, experience, role and responsibilities. Base salaries for our NEOs have generally been set at levels deemed necessary to attract and retain individuals with superior talent.
Dr. Wilsons base salary during 2019 was $360,600 for the portion of such year he served as our Chief Executive Officer. Following his transition to non-employee Chairman in October 2019, he received an annual retainer of $132,000 for such service.
Ms. Boyces annual base salary of $440,000 was established in connection with her commencement of employment in October 2019.
Dr. Levins annual base salary for 2019 was $394,000, which was increased for 2020 to $414,000.
Bonus Compensation
From time to time our board of directors or compensation committee may approve bonuses for our NEOs based on individual performance, company performance or as otherwise determined appropriate.
For 2019, annual bonuses were based on such factors as the board and the compensation committee deemed appropriate, including the achievement of certain corporate performance goals, and each individual NEOs performance as it relates to his or her area of responsibility. The annual bonuses paid to our NEOs for 2019 are reflected in the Summary Compensation Table above.
Each NEO has an established target annual bonus amount. The 2020 target annual bonus amounts for each NEO, expressed as a percentage of annual base salary, are 40% for Ms. Boyce and 30% for Dr. Levin. Dr. Wilson is not eligible for an annual bonus in his capacity as Chairman.
Equity-Based Incentive Awards
Our equity-based incentive awards are designed to align our interests and the interests of our stockholders with those of our employees and consultants, including our named executive officers. The board of directors is responsible for approving equity grants. We typically grant equity awards to new hires upon their commencing employment with us. Generally, our equity awards vest over four years, subject to the employees continued employment with us on each vesting date.
In October 2019, in connection with her commencement of employment, we granted Ms. Boyce an option to purchase 2,525,105 shares of our common stock under our 2013 Equity Incentive Plan, as amended (the 2013 Plan). Twenty-five percent of the options vest on the first anniversary of her employment commencement date and 1/48th of the options vest monthly thereafter, subject to Ms. Boyces continuous service through each such vesting date. The options were granted at an exercise price of $0.59 per share, which was the fair market value of a share on the grant date.
In March 2019, we granted Mr. Hawryluk an option to purchase 50,000 shares of our common stock at an exercise price of $0.25 per share, which was the fair market value of a share on the grant date. The options were eligible to vest in 24 equal monthly installments following the grant date, subject to his continuous service through each such vesting date. Mr. Hawryluk early exercised these options for restricted shares subject to the same vesting schedule, which restricted shares were subject to repurchase by us at the original purchase price per share of $0.16 pursuant to the terms of the award agreements. Mr. Hawryluk held 33,334 restricted shares from such award at the time of his termination in December 2019, which we repurchased from him in February 2020.
Agreements with Our NEOs
Employment Letter Agreement with Ms. Boyce
We entered into an employment letter agreement with Ms. Boyce on September 19, 2019, which governs the terms of her employment with us. Pursuant to her agreement, Ms. Boyce is entitled to an
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annual base salary of $440,000 and, commencing in 2020, is eligible to receive an annual performance bonus with a target amount of 40% of her base salary. Ms. Boyces employment is at will.
Regardless of the manner in which Ms. Boyces employment terminates, she is entitled to receive amounts previously earned during her employment, including unpaid salary and cash out of unused vacation. In addition, Ms. Boyce is entitled to certain severance benefits under her employment letter agreement, subject to her execution of a release of claims and compliance with post-termination obligations.
Ms. Boyces employment letter agreement provides for severance benefits for certain terminations that arise during and outside a change in control period. Upon a termination without cause or resignation for good reason outside of a change in control period (as such terms are defined below), Ms. Boyce is entitled to: (i) continuation of her base salary for 12 months (such applicable period, the severance period), and (ii) payment of the COBRA premiums for her and her eligible dependents until the earliest of (a) the end the severance period, (b) expiration of her eligibility for continuation coverage under COBRA, or (c) the date she becomes eligible for health insurance coverage in connection with her new employment.
Upon a termination without cause or resignation for good reason within 30 days prior to or 12 months after a change in control (such period, the change in control period), Ms. Boyce is entitled to all of the same severance benefits described above and accelerated vesting of the unvested portion of her sign-on option grant.
For purposes of Ms. Boyces employment letter agreement:
● | cause means (1) executives willful failure substantially to perform executives duties and responsibilities to us or deliberate violation of our policy; (2) executives commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to us; (3) executives unauthorized use or disclosure of any proprietary information or trade secrets of ours or any other party to whom executive owes an obligation of nondisclosure as a result of executives relationship with us; or (4) executives willful breach of any of executives obligations under any written agreement or covenant with us; |
● | change in control has the same meaning given to company transaction in our 2013 Plan, as described below; and |
● | good reason means executives resignation form employment with us if we take any of the following actions without executives prior written consent: (1) a material reduction in executives base salary, unless pursuant to a salary reduction program applicable generally to our similarly situated employees; (2) a material reduction in executives duties, including responsibilities and/or authorities, provided that it shall not constitute good reason if such reduction is a mere change of title alone or change in reporting relationship; (3) relocation of executives principal place of employment to a place that increases executives one-way commute by more than 50 miles as compared to executives then-current principal place of employment immediately prior to such relocation; or (4) any other action or inaction that constitutes a material breach by us of this Agreement or any agreement under which executive provides services. |
Chairman Agreement with Troy Wilson
In connection with his transition from Chief Executive Officer to Chairman in October 2019, we entered into a letter agreement with Dr. Wilson. Pursuant to his letter agreement, Dr. Wilson will receive an annual retainer of $132,000.
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Executive Employment Agreement with Dr. Levin
In October 2013, we entered into an employment agreement with Dr. Levin setting forth the terms of his employment. Dr. Levin serves as our Chief Scientific Officer. He receives an annual base salary of $394,000. Dr. Levin is eligible to receive an annual bonus with a target amount equal to 30% of his then-current annual base salary.
Regardless of the manner in which his service terminates, Dr. Levin is entitled to receive amounts previously earned during his term of service, including unpaid salary and cash out of unused vacation. In addition, Dr. Levin is entitled to certain severance benefits under his employment agreement, subject to his execution of a release of claims and compliance with post-termination obligations.
Pursuant to his employment agreement, upon a termination without cause or resignation for good reason not in connection with a company transaction (as such term is defined in his employment agreement), Dr. Levin is entitled to payment equal to 12 months (such applicable period, the severance period) of his then-current base salary, payable in a lump sum.
In addition, Dr. Levins employment agreement provides for severance benefits for certain terminations that arise in connection with a company transaction. Upon a termination without cause or resignation for good reason in connection with a company transaction, Dr. Levin is entitled to: (1) payment equal to 12 months of his then-current base salary, payable in a lump sum, (2) payment equal to his full target annual bonus for the year in which the company transaction occurs, payable in a lump sum, (3) payment of the COBRA premiums for him and his eligible dependents until the earliest of (x) the end of the severance period, (b) expiration of the executives eligibility for continuation coverage under COBRA, or (y) the date the executive becomes eligible for health insurance coverage in connection with the executives new employment, and (iv) all accelerated vesting of any unvested and outstanding equity awards.
For purposes of Dr. Levins employment agreement,
● | cause means executive has (1) been convicted of or pled guilty or nolo contendere to a felony or any crime involving moral turpitude or dishonesty; (2) participated in a fraud or act of dishonesty against us; (3) materially breached any agreement between such executive and us or any written policy of ours; (4) engaged in conduct that demonstrates gross unfitness to serve; or (5) engaged in willful misconduct or (6) refused to comply with any lawful directive of ours and, with respect to clauses (3) and (6), executive has not cured such noncompliance or breach within 30 days of receipt of our written notice of such noncompliance or breach; and |
● | good reason means executives resignation from employment with us if we take any of the following actions without executives prior written consent: (1) a material reduction in executives base salary, unless pursuant to a salary reduction program applicable generally to our similarly situated employees; (2) a material reduction in executives duties, including responsibilities and/or authorities; (3) a material reduction in the authority, duties, or responsibilities of the supervisor to whom executive is required to report, including a requirement that executive report to an officer or employee instead of reporting directly to the board of directors or similar governing body; (4) relocation of executives principal place of employment to a place that increases executives one-way commute by more than 50 miles as compared to executives then-current principal place of employment immediately prior to such relocation; or (5) any other action or inaction that constitutes a material breach by us of this Agreement or any agreement under which executive provides services. |
Release Agreement with Mr. Hawryluk
On December 19, 2019, P. Kent Hawryluks employment as our Chief Business Officer terminated. In connection with his separation, we entered into a release agreement with Mr. Hawryluk, pursuant to
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which we agreed to pay him the following severance benefits: (i) cash severance in the amount of $292,917, payable in a lump sum following the effectiveness of his release; (ii) his annual bonus for 2019 in the amount of $87,875, payable in a lump sum following the effectiveness of his release; and (iii) continued health insurance coverage at Companys expense for 12 months following his termination date.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information with respect to outstanding equity awards for each of our NEOs as of December 31, 2019.
Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#) |
Option Exercise Price ($) |
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 ($)(2) |
||||||||||||||||||||||
Sarah Boyce |
12/18/2019 | | 2,525,105 | 0.59 | 12/17/2029 | | | |||||||||||||||||||||
Troy Wilson, Ph.D. |
| | | | | 166,667 | (3) | |||||||||||||||||||||
Arthur Levin, Ph.D. |
8/29/2017 | 16,666 | 83,334 | 0.25 | 8/28/2027 | | | |||||||||||||||||||||
P. Kent Hawryluk |
8/29/2017 | | | | | 65,625 | (4) | |||||||||||||||||||||
3/29/2019 | | | | | 33,334 | (5) |
(1) | Stock option award granted to Ms. Boyce vests as to 25% of such grant on the one year anniversary of the vesting commencement date (October 7, 2019) and monthly thereafter in equal installments until fully vested at the fourth anniversary of the vesting commencement date, subject to accelerated vesting in certain circumstances as described above under Employment Letter Agreements with our NEOs. Stock option award granted to Dr. Levin vests in 48 equal monthly installments following the grant date until fully vested at the fourth anniversary of the grant date, subject to accelerated vesting in certain circumstances as described above under Agreements with our NEOs. |
(2) | Since we have not yet completed our initial public offering, the market value was computed using $ , which is the midpoint of the price range set forth on the cover page of this prospectus. |
(3) | Represents shares of restricted stock issued upon early exercise of a stock option award granted on August 29, 2017. The award vests in 48 equal monthly installments following the vesting commencement date until fully vested at the fourth anniversary of the grant date. Unvested shares are subject to repurchase by us at the original purchase price per share of $0.25 pursuant to the terms of the award agreements in the event of Dr. Wilsons termination of service prior to the final vesting date. |
(4) | Represents shares of restricted stock issued upon early exercise of a stock option award granted on August 29, 2017. The award was scheduled to vest in accordance with the standard vesting schedule described in footnote (1) above, with a vesting commencement date of August 29, 2017. These awards ceased vesting upon Mr. Hawryluks termination of employment on December 31, 2019, and were repurchased by us at the original purchase price per share of $0.25 pursuant to the terms of the award agreements in February 2020. |
(5) | Represents shares of restricted stock issued upon early exercise of a stock option award granted on March 29, 2019. The award was scheduled to vest in accordance with the standard vesting schedule described in footnote (1) above, with a vesting commencement date of March 29, 2019. These awards ceased vesting upon Mr. Hawryluks termination of employment on December 19, 2019, and were repurchased by us at the original purchase price per share of $0.16 pursuant to the terms of the award agreements in February 2020. |
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Other Elements of Compensation
Perquisites, Health, Welfare and Retirement Benefits
Our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, group life, disability and accidental death and dismemberment insurance plans, in each case on the generally on same basis as all of our other employees. We provide a 401(k) plan to our employees, including our current named executive officers, as discussed in the section below entitled 401(k) Plan.
We generally do not provide perquisites or personal benefits to our named executive officers, except in limited circumstances. Our board of directors may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is in our best interests.
401(k) Plan
We maintain a defined contribution employee retirement plan, or 401(k) plan, for our employees. Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other employees. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the U.S. Internal Revenue Code of 1986, as amended (the Code). The 401(k) plan provides that each participant may make pre-tax deferrals from his or her compensation up to the statutory limit, which is $19,500 for calendar year 2020, and other testing limits. Participants that are 50 years or older can also make catch-up contributions, which in calendar year 2020 may be up to an additional $6,500 above the statutory limit. Although the 401(k) plan provides for discretionary matching and profit sharing contributions, we currently do not make either type of contribution to the 401(k) plan. Participant contributions are held and invested, pursuant to the participants instructions, by the plans trustee.
Nonqualified Deferred Compensation
We do not maintain nonqualified defined contribution plans or other nonqualified deferred compensation plans. Our board of directors may elect to provide our officers and other employees with non-qualified defined contribution or other nonqualified deferred compensation benefits in the future if it determines that doing so is in our best interests.
Termination or Change in Control Benefits
Our executive officers may become entitled to certain benefits or enhanced benefits in connection with a qualifying termination and/or a change in control of our company. Each of our executive officers employment agreements entitles them to certain benefits, upon a qualifying termination and in connection with a change in control of our company. For additional discussion, please see Agreements with Our NEOs.
Incentive Award Plans
2020 Incentive Award Plan
Prior to this offering, we intend to adopt and ask our stockholders to approve the 2020 Plan, which would become effective in connection with this offering. Under the 2020 Plan, we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. The material terms of the 2020 Plan, as it is currently contemplated, are summarized below. Our board of directors is still in the process of developing, approving and implementing the 2020 Plan and, accordingly, this summary is subject to change.
Eligibility and Administration
Our employees, consultants and directors, and employees and consultants of our subsidiaries, will be eligible to receive awards under the 2020 Plan. Following our initial public offering, the 2020 Plan will generally be administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (referred to
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collectively as the plan administrator below), subject to certain limitations that may be imposed under the 2020 Plan, Section 16 of the Exchange Act and/or stock exchange rules, as applicable. The plan administrator will have the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2020 Plan, subject to its express terms and conditions. The plan administrator will also set the terms and conditions of all awards under the 2020 Plan, including any vesting and vesting acceleration conditions.
Limitation on Awards and Shares Available
The number of shares initially available for issuance under awards granted pursuant to the 2020 Plan will be the sum of (1) shares of our common stock, plus (2) any shares subject to outstanding awards under the 2013 Plan as of the effective date of the 2020 Plan that become available for issuance under the 2020 Plan thereafter in accordance with its terms. The number of shares initially available for issuance will be increased by an annual increase on January 1 of each calendar year beginning in 2021 and ending in 2030, equal to the lesser of (a) % of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by our board of directors. No more than shares of common stock may be issued upon the exercise of incentive stock options under the 2020 Plan. Shares issued under the 2020 Plan may be authorized but unissued shares, shares purchased in the open market or treasury shares.
If an award under the 2020 Plan or the 2013 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, any shares subject to such award will, as applicable, become or again be available for new grants under the 2020 Plan. Awards granted under the 2020 Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar corporate transaction will not reduce the shares available for grant under the 2020 Plan.
Awards
The 2020 Plan provides for the grant of stock options, including incentive stock options (ISOs), and nonqualified stock options (NSOs), restricted stock, dividend equivalents, restricted stock units (RSUs), stock appreciation rights (SARs), and other stock or cash-based awards. Certain awards under the 2020 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the 2020 Plan will be set forth in award agreements, which will detail the terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. A brief description of each award type follows.
Stock options. Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. ISOs, by contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. The exercise price of a stock option will not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute options granted in connection with a corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant stockholders). Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions. ISOs generally may be granted only to our employees and employees of our parent or subsidiary corporations, if any.
SARs. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of a SAR will not be less than 100% of the fair market value of the underlying share on
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the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction), and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions.
Restricted stock and RSUs. Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and until specified conditions are met, and which may be subject to a purchase price. RSUs are contractual promises to deliver shares of our common stock in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on shares of our common stock prior to the delivery of the underlying shares. Delivery of the shares underlying RSUs may be deferred under the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. Conditions applicable to restricted stock and RSUs may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine.
Other stock or cash-based awards. Other stock or cash-based awards are awards of cash, fully vested shares of our common stock and other awards valued wholly or partially by referring to, or otherwise based on, shares of our common stock. Other stock or cash-based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. The plan administrator will determine the terms and conditions of other stock or cash-based awards, which may include vesting conditions based on continued service, performance and/or other conditions.
Performance Awards
Performance awards include any of the foregoing awards that are granted subject to vesting and/or payment based on the attainment of specified performance goals or other criteria the plan administrator may determine, which may or may not be objectively determinable. Performance criteria upon which performance goals are established by the plan administrator may include: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including, but not limited to, gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to our performance or the performance of a subsidiary, division, business segment or business unit, or based upon performance relative to performance of other companies or upon comparisons of any of the indicators of performance relative to performance of other companies.
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Provisions of the 2020 Plan Relating to Director Compensation
The 2020 Plan provides that the plan administrator may establish compensation for non-employee directors from time to time subject to the 2020 Plans limitations. Prior to commencing this offering, our stockholders will approve the initial terms of our non-employee director compensation program, which is described below under the heading Director Compensation. Our board of directors or its authorized committee may modify the non-employee director compensation program from time to time in the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation or other compensation and the grant date fair value (as determined in accordance with ASC 718, or any successor thereto) of any equity awards granted as compensation for services as a non-employee director during any fiscal year may not exceed $ , increased to $ , in the fiscal year of a non-employee directors initial service as a non-employee director. The plan administrator may make exceptions to this limit for individual non-employee directors in extraordinary circumstances, as the plan administrator may determine in its discretion, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee directors.
Certain Transactions
In connection with certain transactions and events affecting our common stock, including a change in control, or change in any applicable laws or accounting principles, the plan administrator has broad discretion to take action under the 2020 Plan to prevent the dilution or enlargement of intended benefits, facilitate such transaction or event, or give effect to such change in applicable laws or accounting principles. This includes canceling awards in exchange for either an amount in cash or other property with a value equal to the amount that would have been obtained upon exercise or settlement of the vested portion of such award or realization of the participants rights under the vested portion of such award, accelerating the vesting of awards, providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares available, replacing awards with other rights or property or terminating awards under the 2020 Plan. In the event of a change in control where the acquirer does not assume awards granted under the 2020 Plan, awards issued under the 2020 Plan may be subject to accelerated vesting such that 100% of the awards will become vested and exercisable or payable, as applicable. In addition, in the event of certain non-reciprocal transactions with our stockholders, or an equity restructuring, the plan administrator will make equitable adjustments to the 2020 Plan and outstanding awards as it deems appropriate to reflect the equity restructuring.
Foreign Participants, Claw-back Provisions, Transferability and Participant Payments
With respect to foreign participants, the plan administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above. All awards will be subject to the provisions of any claw-back policy implemented by our company to the extent set forth in such claw-back policy or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2020 Plan are generally non-transferable prior to vesting and are exercisable only by the participant. With regard to tax withholding obligations arising in connection with awards under the 2020 Plan and exercise price obligations arising in connection with the exercise of stock options under the 2020 Plan, the plan administrator may, in its discretion, accept cash, wire transfer, or check, shares of our common stock that meet specified conditions, a market sell order or such other consideration as it deems suitable or any combination of the foregoing.
Plan Amendment and Termination
Our board of directors may amend or terminate the 2020 Plan at any time; however, except in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that increases the number of shares available under the 2020 Plan. The plan administrator will have the authority, without the approval of our stockholders, to amend any outstanding stock option
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or SAR to reduce its price per share. No award may be granted pursuant to the 2020 Plan after the tenth anniversary of the date on which our board of directors adopts the 2020 Plan.
Securities Laws
The 2020 Plan is intended to conform to all provisions of the Securities Act, and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2020 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 2020 Plan under current federal income tax law are summarized in the following discussion, which deals with the general tax principles applicable to the 2020 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 SARs. A 2020 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 SAR. 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 or an NSO. Upon exercising an NSO when the fair market value of our stock is higher than the exercise price of the option, a 2020 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 2020 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.
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Upon exercising or settling an SAR, a 2020 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 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 RSUs. A 2020 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 RSUs. Upon the termination of restrictions on restricted stock or the payment of RSUs, 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 2020 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.
Other stock or cash-based awards. A 2020 Plan participant will not recognize taxable income and we will not be entitled to a tax deduction upon the grant of other stock 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.
2013 Equity Incentive Plan
Our board of directors adopted our 2013 Plan in January 2013, and our members approved our 2013 Plan in January 2013. Our 2013 Plan was most recently amended by our board of directors in November 2019 and approved by our stockholders in November 2019. As of March 31, 2020, there were 3,377,646 shares remaining available for the future grant of stock awards under our 2013 Plan. As of March 31, 2020, there were outstanding stock options and restricted stock covering a total of 5,121,274 shares of our common stock that were granted under our 2013 Plan. We expect that any shares remaining available for issuance under the 2013 Plan will become available for issuance under the 2020 Plan in connection with this offering.
Stock Awards
Our 2013 Plan provides for the grant of NSOs and restricted stock awards to employees, directors and consultants, including employees and consultants of our affiliates. To date, we have only granted stock options (and restricted stock awards issued upon early exercise of stock options) under the 2013 Plan.
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Authorized Shares
Subject to certain capitalization adjustments, the aggregate number of shares of common stock that may be issued pursuant to stock awards under the 2013 Plan will not exceed 10,065,722 shares.
Shares subject to stock awards granted under our 2013 Plan that expire or otherwise terminate without being exercised in full or that are settled in cash rather than in shares do not reduce or otherwise offset the number of shares available for issuance under our 2013 Plan. Additionally, if any shares issued pursuant to a stock award are forfeited back to or repurchased because of the failure to meet a contingency or condition required to vest, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the 2013 Plan. This includes shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award.
Plan Administration
Our board of directors, or a duly authorized committee of our board of directors to which the board delegates its administrative authority, will administer our 2013 Plan and is referred to as the plan administrator herein. The plan administrator may also delegate to one or more of our officers the authority to (1) designate employees (who are not officers) to receive specified options (and to the extent permitted by applicable law, other stock awards) and to the extent permitted by applicable law, the terms of such stock awards and (2) determine the number of shares subject to such stock awards; provided, however, that the board resolutions regarding such delegation must specify the total number of shares that may be subject to awards granted by such officer, and provided further, that no officer may grant an award under the 2013 Plan to himself or herself. Under our 2013 Plan, the plan administrator has the authority to, among other things, determine award recipients, dates of grant, the numbers and types of stock awards to be granted, the applicable fair market value and the provisions of each stock award, including the period of their exercisability and the vesting schedule applicable to a stock award, to construe and interpret the 2013 Plan and awards granted thereunder (and to establish, amend and revoke any rules and regulations for the administration of the 2013 Plan), and to accelerate awards.
Under the 2013 Plan, the plan administrator also generally has the authority to effect, with the consent of any adversely affected participant, (A) the reduction of the exercise, purchase or strike price of any outstanding stock award; (B) the cancellation of any outstanding stock award and the grant in substitution therefore of other awards, cash, or other consideration; or (C) any other action that is treated as a repricing under generally accepted accounting principles.
Stock Options
NSOs are granted under stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2013 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2013 Plan vest at the rate specified in the stock option agreement as determined by the plan administrator.
The plan administrator determines the term of stock options granted under the 2013 Plan, up to a maximum of ten years. If an optionholders service relationship with us or any of our affiliates ceases for any reason other than disability, death or cause, the optionholder may generally exercise any vested options for a period of up to three months following the cessation of service. This period may be extended in the event that exercise of the option is prohibited by applicable securities laws or our insider trading policy.
If an optionholders service relationship with us or any of our affiliates ceases due to death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of up to 18 months following the
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date of death. If an optionholders service relationship with us or any of our affiliates ceases due to disability, the optionholder may generally exercise any vested options for a period of up to 12 months following the cessation of service. In the event of a termination for cause, options generally terminate upon the termination date. In no event may an option be exercised beyond the expiration of its term.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (1) cash, check, bank draft or money order payable to us, (2) the tender of shares of our common stock previously owned by the optionholder, (3) a net exercise of the option, (4) a deferred payment arrangement, or (5) other legal consideration approved by the plan administrator.
Unless the plan administrator provides otherwise, options generally are not transferable except by will or the laws of descent and distribution. Subject to approval of the plan administrator or a duly authorized designee in each case, (i) an option may be transferred pursuant to a domestic relations order and (ii) an optionholder may designate a beneficiary who may exercise the option following the optionholders death.
A stock option may include provisions for the early exercise of options by the optionholder, the right of repurchase by us of vested shares acquired by the optionholder upon the exercise of the option, and the right of first refusal by us following receipt of notice from the optionholder of the intent to transfer shares upon the exercise of the option.
Restricted Stock Awards
Restricted stock awards are granted under restricted stock award agreements adopted by the plan administrator. A restricted stock award may be awarded in consideration for cash or cash equivalents, past or future services to us, or any other form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. The plan administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. If a participants service relationship with us ends for any reason, we may receive any or all of the shares of common stock held by the participant that have not vested as of the date the participant terminates service with us through a forfeiture condition or a repurchase right. Additionally, rights to acquire shares of common stock under the restricted stock award agreement will be transferrable by the participant only upon the terms and conditions as set forth in such agreement. A restricted stock award may include a provision for the right of first refusal by us following receipt of notice from the participant of the intent to transfer shares pursuant to the restricted stock award agreement.
Changes to Capital Structure
In the event of a capitalization adjustment, the board of directors, in its discretion, will make appropriate and proportionate adjustments to (1) the class and maximum number of shares reserved for issuance under the 2013 Plan, and (2) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards. For purposes of the 2013 Plan, capitalization adjustment generally means any change that is made in (or other events occurring with respect to) our common stock subject to the 2013 Plan or any award without the receipt of consideration by us through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large non-recurring cash dividend, stock split, reverse stock split, liquidating dividend, combination or exchange of shares, change in corporate structure, or other similar equity restructuring transaction (within the meaning of FASB ASC Topic 718).
Dissolution or Liquidation. Our 2013 Plan provides that in the event of a dissolution or liquidation, unless otherwise provided in an award agreement, all outstanding stock awards (other than those not subject to forfeiture or repurchase) will be terminated, and shares subject to repurchase or forfeiture may be repurchased or reacquired, provided the board of directors may cause some or all stock awards to become vested, exercisable, and no longer subject to repurchase or forfeiture.
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Company Transactions. Our 2013 Plan provides that in the event of a company transaction, unless otherwise provided in an award agreement or other written agreement between us and the award holder, the plan administrator may take one or more of the following actions with respect to the stock awards:
● | arrange for the assumption, continuation, or substitution of a stock award by a surviving or acquiring corporation; |
● | arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring corporation; |
● | accelerate the vesting, in whole or in part, of the stock award and provide for its termination if not exercised (if applicable) at or before the effective time of the transaction; |
● | arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us with respect to the stock award; |
● | cancel or arrange for the cancellation of the stock award, to the extent not vested or exercised before the effective time of the transaction, in exchange for such cash consideration, if any, as the board of directors may consider appropriate; and |
● | make a payment equal to the excess, if any, of (A) the value of the property the participant would have received on exercise of the award, over (B) any exercise price payable by the participant in connection with the exercise. |
The plan administrator is not obligated to treat all stock awards, including the vested and unvested portions of a stock award, in the same manner and is not obligated to treat all participants in the same manner.
Under the 2013 Plan, a company transaction is generally defined as the consummation, in a single transaction or in a series of related transactions, of: (1) a sale or other disposition of all or substantially all of our assets, (2) the sale or disposition of at least 90% of our outstanding securities, (3) a merger, consolidation or similar transaction where we do not survive the transaction, or (4) a merger, consolidation or similar transaction where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction.
Change in Control. A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control as may be provided in an applicable award agreement or other written agreement, but in the absence of such provision, no such acceleration will occur. Under the 2013 Plan, a change in control is generally defined as (1) the acquisition by a person or entity of more than 50% of the combined voting power of our then outstanding stock other than by merger, consolidation or similar transaction, (2) a consummated merger, consolidation or similar transaction in which our stockholders immediately before the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity) in substantially the same proportions as their ownership immediately prior to such transaction, (3) a consummated sale, lease, exclusive license or other disposition of all or substantially all of our assets other than to an entity more than 50% of the combined voting power of which is owned by our stockholders in substantially the same proportions as their ownership of our outstanding voting securities immediately prior to such transaction, or (4) individuals who, on the date the 2013 Plan is adopted by the board of directors, are members of the board of directors ceasing for any reason to constitute at least a majority of the members of our board of directors.
Plan Amendment or Termination
Our board of directors has the authority to amend, suspend, or terminate our 2013 Plan, provided that such action does not impair the existing rights of any participant without such participants written consent. Certain material amendments also require the approval of our stockholders. Unless
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terminated sooner, the 2013 Plan will automatically terminate on the day before the 10th anniversary of the earlier of (i) the date the 2013 Plan was adopted by our board of directors, or (ii) the date the 2013 Plan was approved by our stockholders. No stock awards may be granted under our 2013 Plan while it is suspended or after it is terminated.
2020 Employee Stock Purchase Plan
In connection with this offering, we intend to adopt and ask our stockholders to approve a 2020 Employee Stock Purchase Plan (the ESPP), which would become effective in connection with this offering. The material terms of the ESPP, as it is currently contemplated, are summarized below. Our board of directors is still in the process of considering the ESPP and, accordingly, this summary is subject to change.
Shares available; administration. A total of shares of our common stock are initially reserved for issuance under our ESPP. In addition, the number of shares available for issuance under the ESPP will be annually increased on January 1 of each calendar year beginning in 2021 and ending in 2030, by an amount equal to the lesser of: (a) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by our board of directors. In no event will more than shares of our common stock be available for issuance under the ESPP.
Our board of directors or its committee will have authority to interpret the terms of the ESPP and determine eligibility of participants. We expect that the compensation committee will be the initial administrator of the ESPP.
Eligibility. Our employees are eligible to participate in the ESPP if they meet the eligibility requirements under the ESPP established from time to time by the plan administrator. 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.
Grant of rights. The ESPP is intended to qualify under Section 423 of the Code and stock will be offered under the ESPP during offering periods. The length of the offering periods under the ESPP will be determined by the plan administrator 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 number of purchase periods within, and purchase dates during each offering period will be established by the plan administrator prior to the commencement of each offering period. Offering periods under the ESPP will commence when determined by the plan administrator. The plan administrator may, in its discretion, modify the terms of future offering periods.
The 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 us, including overtime payments and excluding sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and other special payments. The plan administrator will establish a maximum number of shares that may be purchased by a participant during any offering period, which, in the absence of a contrary designation, will be shares. 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 will automatically be granted an option to purchase shares of our common stock. The option will be exercised on the applicable
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purchase date(s) during the offering period, to the extent of the payroll deductions accumulated during the applicable purchase period. The purchase price of the shares, in the absence of a contrary determination by the plan administrator, 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, which will be the final trading day of the applicable purchase period. Participants may voluntarily end their participation in the ESPP at any time at least one week prior to the end of the applicable offering period (or such shorter or longer period specified by the plan administrator), and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon a participants termination of employment.
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.
Certain Transactions. In the event of certain transactions or events affecting our common stock, such as any stock dividend or other distribution, change in control, reorganization, merger, consolidation or other corporate transaction, the plan administrator will make equitable adjustments to the ESPP and outstanding rights. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control, the plan administrator may provide for (1) either the replacement of outstanding rights with other rights or property 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 scheduled 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 2020 Plan.
Plan amendment; Termination. The plan administrator may amend, suspend or terminate the ESPP at any time. However, stockholder approval of any amendment to the ESPP will be obtained for any amendment which increases the aggregate number or changes the 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 on the tenth anniversary of the date it is initially approved 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 2020 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
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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 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.
Director Compensation
To date, we have not paid any cash compensation to the non-employee members of our board of directors for their services as directors, with the exception of Dr. Wilson, whose 2019 compensation for his service as our non-employee Chairman during 2019 is disclosed in the Summary Compensation Table and other executive compensation disclosure above due to his service as an executive officer for a portion of 2019. We have provided stock-based compensation to certain of our non-employee directors. We have reimbursed, and will continue to reimburse, our non-employee directors for their actual out-of-pocket costs and expenses incurred in connection with attending board meetings. Sarah Boyce, our President and Chief Executive Officer, is also a member of our board of directors, but does not receive any additional compensation for her service as a director.
Effective August 28, 2019, we granted each of Dr. Henig and Dr. Kaye options to purchase 20,114 shares of our common stock in connection with their appointment to our board of directors under our 2013 Plan. The stock options have a ten-year term and an exercise price of $0.20 per share, which our board of directors determined was equal to the fair market value per share of our common stock on the date of grant. The options will vest monthly over a one-year period, subject to continued service with us on each vesting date.
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The following table summarizes compensation received by our non-employee directors during the year ended December 31, 2019. Dr. Wilson and Ms. Boyce are not included in the following table as they served as executive officers during 2019 and their compensation is included in the Summary Compensation Table in the Executive Compensation and Other Information section below.
Name |
Fees Earned or Paid in Cash ($) |
Option Awards ($)(1) |
Total ($) |
|||||||||
Todd Brady |
| | | |||||||||
Noreen Henig, M.D. |
| 21,794 | 21,794 | |||||||||
Edward Kaye, M.D. |
| 21,794 | 21,794 | |||||||||
Michael Martin, Ph.D. |
| | | |||||||||
Roderick Wong, M.D. |
| | |
(1) | Represents the grant date fair value of stock options to purchase shares of our common stock computed in accordance with FASB ASC 718. See Note 8 to our audited financial statements for the fiscal year ended December 31, 2019 included with this prospectus for a description of the assumptions used in valuing our stock options. |
The aggregate number of shares subject to stock options outstanding at December 31, 2019 for the individuals who served as non-employee directors during 2019 was as follows:
Name |
Number of Securities Underlying Options Outstanding at December 31, 2019 |
|||
Todd Brady |
| |||
Noreen Henig, M.D. |
20,114 | |||
Edward Kaye, M.D. |
20,114 | |||
Michael Martin, Ph.D. |
| |||
Roderick Wong, M.D. |
|
In connection with this offering, we intend to adopt and ask our stockholders to approve the initial terms of our non-employee director compensation program. The material terms of the non-employee director compensation program, as it is currently contemplated, are summarized below. Our board of directors is still in the process of considering the non-employee director compensation program and, accordingly, this summary is subject to change.
The non-employee director compensation policy will provide for annual retainer fees and/or long-term equity awards for our non-employee directors. We expect each non-employee director will receive an annual retainer of $ , with a non-employee director serving as Chairman of the board of directors or lead independent director receiving an additional annual retainer of $ . Non-employee directors serving as the chairs of the audit, compensation and nominating and corporate governance committees will receive additional annual retainers of $ , $ and $ , respectively. Non-employee directors serving as members of the audit, compensation and nominating and corporate governance committees will receive additional annual retainers of $ , $ and $ , respectively. The non-employee directors will also receive initial grants of options to purchase shares of our common stock, vesting in equal monthly installments over three years, upon initial election or appointment to the board of directors, and thereafter annual grants of options to purchase shares of our common stock on the date of each annual meeting of stockholders following the completion of this offering, vesting on the first to occur of (1) the first anniversary of the grant date or (2) the next occurring annual meeting of our stockholders. In addition, equity awards granted to our non-employee directors will vest upon a change in control of our company.
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Compensation under our non-employee director compensation policy will be subject to the annual limits on non-employee director compensation set forth in the 2020 Plan, as described above. Our board of directors or its authorized committee may modify the non-employee director compensation program from time to time in the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, subject to the annual limit on non-employee director compensation set forth in the 2020 Plan. As provided in the 2020 Plan, our board of directors or its authorized committee may make exceptions to this limit for individual non-employee directors in extraordinary circumstances, as the board of directors or its authorized committee may determine in its discretion, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation or in other compensation decisions involving non-employee directors.
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 qualified in its entirety by reference to these documents, each of which is filed as an exhibit to the registration statement of which this prospectus is a part.
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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, 2017 to which we have been a party in which the amount involved exceeded or will exceed the lesser of $120,000 and one percent of the average of our total assets at year-end for the last two completed fiscal years, 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.
Conversion from Limited Liability Company to Corporation
In April 2019, we converted from a Delaware limited liability company named Avidity Biosciences, LLC (formerly known as Avidity NanoMedicines LLC) (Avidity LLC), to Avidity Biosciences, Inc., a Delaware corporation. We refer to this activity as the Conversion. As a result, the members of Avidity LLC became our stockholders in the same ownership proportions as immediately prior to the Conversion, and all 6,159,933 common units, 4,350,299 Series A preferred units and 8,108,471 Series B preferred units of Avidity LLC outstanding at the time of the Conversion were converted into 6,159,933 shares of common stock, 4,350,299 shares of Series A convertible preferred stock and 8,108,471 shares of Series B convertible preferred stock, respectively, of Avidity Biosciences, Inc.
Convertible Promissory Note Financings
2018 Notes. In July 2018, we issued and sold in a private placement to certain investors an aggregate principal amount of $3.0 million in convertible promissory notes (the 2018 Notes). The 2018 Notes accrued interest at a rate of 8% per annum. The 2018 Notes, including an aggregate of approximately $307,000 in accrued interest thereon, were automatically converted into shares of our Series C convertible preferred stock in the Series C convertible preferred stock financing described below.
2019 Notes. In February 2019, we issued and sold in a private placement to certain investors an aggregate principal amount of $4.5 million in convertible promissory notes (the 2019 Notes, and together with the 2018 Notes, the Notes). The 2019 Notes accrued interest at a rate of 10% per annum. The 2019 Notes, including an aggregate of approximately $322,000 in accrued interest thereon, were automatically converted into shares of our Series C convertible preferred stock in the Series C convertible preferred stock financing described below.
Agreements with Lilly
In April 2019, we and Lilly entered into a research collaboration and license agreement, as described in BusinessResearch and Collaboration License Agreement with Lilly and Company. In connection with our entry into the research collaboration and license agreement, we entered into a convertible note purchase agreement with Lilly pursuant to which we issued and sold in a private placement to Lilly a convertible promissory note in the principal amount of $15.0 million (the Lilly Note). The Lilly Note accrued interest at a rate of 8% per annum. The Lilly Note, including approximately $674,000 in accrued interest thereon, was automatically converted into shares of our Series C convertible preferred stock in the Series C convertible preferred stock financing described below. Lilly is a beneficial owner of more than 5% of our capital stock.
Convertible Preferred Unit and Preferred Stock Financings
Series B Convertible Preferred Unit Financings. In December 2016, we entered into a Series B preferred unit purchase agreement, pursuant to which we sold to investors in an initial closing and
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subsequent closings from December 2016 to October 2017 in private placements an aggregate of 8,108,471 Series B preferred units. The per unit purchase price was $2.8269, and we received gross proceeds of approximately $21.3 million, which included the conversion of previously outstanding convertible promissory notes at a discounted price of $2.2615 per unit.
Series C Convertible Preferred Stock Financings. In November 2019, we entered into a Series C preferred stock purchase agreement, pursuant to which we sold to investors in an initial closing and a subsequent closing in November 2019 and January 2020, respectively, in private placements, an aggregate of 25,345,793 shares of Series C convertible preferred stock. The per share purchase price was $4.2812, and we received gross proceeds of approximately $102.8 million, which included the conversion of the 2018 Notes, the 2019 Notes and the Lilly Note at a discounted purchase price of $3.639, $3.425 and $3.425, respectively.
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 outstanding Series B preferred unit, including the Series B preferred units identified in the following table, was converted into one share of Series B convertible preferred stock in connection with the Conversion. Each outstanding share of convertible preferred stock, including the shares identified in the tables above, will convert into shares of common stock at a ratio of one-for-one immediately prior to the closing of this offering.
Participants |
Principal Amount of 2018 Notes |
Principal Amount of 2019 Notes |
Series B Convertible Preferred Units |
Series C Convertible Preferred Shares |
||||||||||||
5% or Greater Stockholders(1) |
||||||||||||||||
Entities affiliated with ALETHEA Capital Management(2) |
$ | 500,000 | $ | 2,500,000 | 1,144,753 | 1,517,733 | ||||||||||
Brace Pharmaceuticals LLC(3) |
$ | 500,000 | 1,500,336 | 151,464 | ||||||||||||
Entities affiliated with Cormorant Asset Management(4) |
4,671,586 | |||||||||||||||
Entities affiliated with EcoR1 Capital(5) |
176,871 | 2,335,792 | ||||||||||||||
Eli Lilly and Company |
$ | 15,000,000 | 4,576,342 | |||||||||||||
Entities affiliated with RTW Investments(6) |
6,423,431 | |||||||||||||||
Takeda Ventures, Inc.(7) |
$ | 550,000 | $ | 1,000,000 | 1,061,233 | 479,458 | ||||||||||
Officers and Directors |
||||||||||||||||
Troy Wilson, Ph.D., J.D. (8) |
$ | 100,000 | $ | 250,000 | 35,374 | 108,504 | ||||||||||
P. Kent Hawryluk (9) |
$ | 100,000 | $ | 250,000 | 35,374 | 108,504 |
(1) | Additional details regarding these stockholders and their equity holdings are provided in Principal Stockholders. |
(2) | Represents securities acquired by ALETHEA Biotech Fund, LP and ALETHEA Fulcrum Fund, LP. |
(3) | Todd Brady, a member of our board of directors, is the Director of Finance and Investments at Brace Pharma Capital, which is an affiliate of Brace Pharmaceuticals. At the time of our 2018 and 2019 convertible note financings and our Series B convertible preferred unit financing, Mr. Brady served as one of our Managers. |
(4) | Represents securities acquired by Cormorant Private Healthcare Fund II, LP, Cormorant Global Healthcare Master Fund, LP and CRMA SPV, LP. |
(5) | Represents securities acquired by EcoR1 Capital Fund Qualified, L.P., EcoR1 Capital Fund, L.P. and EcoR1 Venture Opportunity Fund, L.P, |
(6) | Represents securities acquired by RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited (collectively, RTW). Roderick Wong, M.D., a member of our board of |
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directors, is Managing Partner and Chief Investment Officer of RTW Investments, LP, an affiliate of RTW. |
(7) | Michael Martin, Ph.D., a member of our board of directors, is the President of Takeda Ventures. At the time of our 2018 and 2019 convertible note financings and our Series B convertible preferred unit financing, Mr. Martin served as one of our Managers. |
(8) | Represents securities acquired by a family trust. Troy Wilson, Ph.D., J.D. is a trustee of the family trust. Dr. Wilson is currently, and was at the time of the Series C convertible preferred stock financing, our Chairman. At the time of our 2018 and 2019 convertible note financings and our Series B convertible preferred unit financing, Dr. Wilson served as one of our Managers and as our Chief Executive Officer. |
(9) | Represents securities acquired by an IRA and family trust. Mr. Hawryluk is the beneficiary of the IRA and the trustee of the family trust. At the time of our 2018 and 2019 convertible note financings, our Series B convertible preferred unit financing and the first closing of our Series C convertible preferred stock financing, Mr. Hawryluk served as our Chief Business Officer. |
Takeda Evaluation Agreement
In June 2017, we and Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, an affiliate of Takeda Ventures, entered into an evaluation agreement. Michael Martin, Ph.D., a member of our board of directors, is the President of Takeda Ventures and, at the time we entered into the evaluation agreement, was one of our Managers. Pursuant to the evaluation agreement, we conducted certain work in exchange for payment of approximately $605,000. The evaluation agreement terminated in June 2018.
Registration Rights Agreement
We entered into an amended and restated registration rights agreement in April 2019, as amended and restated in November 2019, with the holders of our convertible preferred stock, including entities with which certain of our directors are affiliated. The registration rights agreement provides for certain rights relating to the registration of their shares of common stock issuable upon conversion of their convertible preferred stock 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 registration rights agreement), all rights under this agreement will terminate upon closing of this offering. The registration rights will continue following this offering and will terminate three years after the closing of this offering. See Description of Capital StockRegistration Rights for more information regarding these registration rights.
Voting Agreement
We entered into an amended and restated voting agreement in April 2019, as amended and restated in November 2019, with the holders of our convertible preferred stock, including entities with which certain of our directors are affiliated, 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: Sarah Boyce, Todd Brady, Noreen Henig, M.D., Edward Kaye, M.D., Michael Martin, Ph.D., Troy Wilson, Ph.D., J.D. and Roderick Wong, M.D. Pursuant to the voting agreement, Ms. Boyce, as our Chief Executive Officer, serves on our board of directors as the CEO director. Mr. Brady, Dr. Martin and Dr. Wong were initially selected to serve on our board of directors as representatives of the holders of our convertible preferred stock, as designated by Brace Pharmaceuticals, Takeda Ventures and RTW Investments LP and its affiliates (RTW), respectively. Dr. Wilson was initially selected to serve on our board of directors as a representative of the holders of our common stock and preferred stock, as designated by a majority of our common and preferred stockholders, voting together as a single class. Dr. Henig and Dr. Kaye were initially selected to serve on our board of directors by our existing directors.
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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.
Public Offering Participation Rights
We entered into a letter agreement in November 2019 with RTW, a beneficial owner of more than 5% of our capital stock. The letter agreement grants RTW a participation right to purchase a specified percentage of shares of common stock in this offering at the public offering price, subject to compliance with applicable securities laws. The letter agreement further provides that, under certain circumstances in which RTW is unable to participate in this offering, we are required to offer RTW shares of our common stock through a separate private placement to be concurrent with this offering.
Equity Grants to Executive Officers and Directors
We have granted restricted stock and stock options to certain of our executive officers and non-employee directors, as more fully described in Executive and Director Compensation.
Employment Arrangements
We have entered into employment letter agreements with our executive officers. For more information regarding these letter agreements, see Executive and Director Compensation Agreements with Our NEOs.
Director and Officer Indemnification
We have entered into indemnification agreements with each of our directors and executive officers. 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.
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 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.
Policies and Procedures for Related Person Transactions
Our board of directors will adopt a written related person transaction policy, to be effective upon the closing 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 the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, 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,
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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, 2020, and as adjusted to reflect the sale of shares of common stock in this offering, by:
● | 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 44,203,374 shares of common stock outstanding on March 31, 2020, which gives effect to the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of our common stock immediately prior to the closing of this offering and includes 316,601 shares subject to forfeiture or a right of repurchase. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to warrants, options or other rights held by such person that are currently exercisable or will become exercisable within 60 days of March 31, 2020 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 Avidity Biosciences, Inc., 10975 N. Torrey Pines Road, Suite 150, La Jolla, California 92037. 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.
Number of Shares Beneficially Owned |
Percentage of Shares Beneficially Owned |
|||||||||||
Name of Beneficial Owner |
Before Offering |
After Offering |
||||||||||
5% or Greater Stockholders |
||||||||||||
Entities affiliated with RTW Investments(1) |
6,423,431 | 14.5 | % | |||||||||
Entities affiliated with Cormorant Asset Management(2) |
4,671,586 | 10.6 | % | |||||||||
Eli Lilly and Company |
4,576,342 | 10.4 | % | |||||||||
Entities affiliated with ALETHEA Capital Management(3) |
3,635,291 | 8.2 | % | |||||||||
Entities affiliated with EcoR1 Capital(4) |
2,733,755 | 6.2 | % | |||||||||
Executive Officers and Directors |
||||||||||||
Sarah Boyce |
| * | ||||||||||
P. Kent Hawryluk(5) |
1,228,732 | 2.8 | % | |||||||||
Arthur Levin, Ph.D.(6) |
693,337 | 1.6 | % | |||||||||
Troy Wilson, Ph.D., J.D.(7) |
2,098,785 | 4.7 | % | |||||||||
Todd Brady |
| * | ||||||||||
Noreen Henig, M.D.(8) |
15,085 | * | ||||||||||
Edward Kaye, M.D.(9) |
15,085 | * | ||||||||||
Michael Martin, Ph.D.(10) |
1,540,691 | 3.5 | % | |||||||||
Roderick Wong, M.D.(1) |
6,423,431 | 14.5 | % | |||||||||
All executive officers and directors as a group (10 persons)(11) |
12,015,146 | 27.1 | % |
* | Less than 1%. |
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(1) | Consists of (i) 985,938 shares of common stock held by RTW Innovation Master Fund, Ltd., (ii) 4,269,597 shares of common stock held by RTW Master Fund, Ltd. and (ii) 1,167,896 shares of common stock held by RTW Venture Fund Limited. RTW Investments, LP is the manager of RTW Master Fund, Ltd., RTW Venture Fund Limited and RTW Innovation Master Fund. Dr. Wong is the Managing Partner and Chief Investment Officer of RTW Investments, and as such may be deemed to beneficially own such shares. Dr. Wong disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. The address of RTW Investments and Dr. Wong is 412 West 15th Street, Floor 9, New York, New York, 10011. |
(2) | Consists of (i) 3,717,182 shares of common stock held by Cormorant Private Healthcare Fund II, LP (Cormorant Fund II), (ii) 885,732 shares of common stock held by Cormorant Global Healthcare Master Fund, LP (Cormorant Master Fund), and (iii) 68,672 shares held by CRMA SPV, L.P. (CRMA, and, together with Cormorant Fund II and Cormorant Master Fund, the Cormorant Funds). Cormorant Global Healthcare GP, LLC (Global GP) is the general partner of Cormorant Master Fund and Cormorant Private Healthcare II GP, LLC (Private GP) is the general partner of Cormorant II. Bihua Chen serves as the managing member of both Global GP and Private GP. Cormorant Asset Management LP serves as the investment manager to Cormorant Fund II, Cormorant Master Fund and CRMA, and Ms. Chen serves as the managing member of Cormorant Asset Management GP, LLC. Ms. Chen may be deemed to beneficially own the shares held by the Cormorant Funds. Ms. Chen disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. The address of the Cormorant Funds, Global GP, Private GP, Cormorant Asset Management LP, and Ms. Chen is 200 Clarendon Street, 52nd Floor, Boston, Massachusetts 02116. |
(3) | Consists of (i) 3,051,343 shares of common stock held by ALETHEA Biotech Fund, LP (ALETHEA Biotech) and (ii) 583,948 shares of common stock held by ALETHEA Fulcrum Fund, LP. (ALETHEA Fulcrum). ALETHEA Capital Management, LLC is the general partner of ALETHEA Biotech and ALETHEA Fulcrum. Tony Hsu is the Managing Member of ALETHEA Capital Management. By virtue of such relationships, Mr. Hsu has voting and investment power over the shares held by ALETHEA Biotech and ALETHEA Fulcrum. Mr. Hsu disclaims beneficial ownership of the shares held by ALETHEA Biotech and ALETHEA Fulcrum, except to the extent of his actual pecuniary interest therein if any. The address for ALETHEA Capital Management is 18029 Calle Ambiente, Suite 509, Rancho Santa Fe, California 92067. |
(4) | Consists of (i) 1,360,776 shares of common stock held by EcoR1 Capital Fund Qualified, L.P. (EcoR1 Qualified), (ii) 317,471 shares of common stock held by EcoR1 Capital Fund, L.P. (EcoR1 Fund), and (iii) 1,055,508 shares of common stock held by EcoR1 Venture Opportunity Fund, L.P. (EcoR1 Venture). EcoR1 Capital LLC is the general partner of EcoR1 Qualified and EcoR1 Fund. Biotech Opportunity GP, LLC is the general partner of EcoR1 Venture. Oleg Nodelman owns and controls EcoR1 Capital and Biotech Opportunity GP, LLC and as such may be deemed to beneficially own such shares. Mr. Nodelman disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. The address of EcoR1 and Mr. Nodelman is 357 Tehama Street, Suite 3, San Francisco, California 94103. |
(5) | Includes (i) 1,181,774 shares held by a trust and (ii) 30,292 shares held in an IRA account. Mr. Hawryluk is the trustee of the trust and the beneficiary of the IRA account, and in such capacity has the power to vote and dispose of such shares. |
(6) | Includes (i) 37,500 shares of common stock underlying options held by Dr. Levin that are exercisable as of March 31, 2020 or that will become exercisable within 60 days after such date, and (ii) 655,837 shares of common stock held by a family trust. Dr. Levin and his spouse, Madeline Butler, are co-trustees of the family trust and in such capacity have joint power to vote and dispose of such shares. |
(7) | Includes (i) 141,667 shares subject to repurchase and (ii) 1,698,785 shares of common stock held by a family trust. Dr. Wilson and his spouse, Lemoure Eliasson, are co-trustees of the trust and in such capacity have joint power to vote and dispose of such shares. |
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(8) | Includes 15,085 shares of common stock underlying options held by Dr. Henig that are exercisable as of March 31, 2020 or that will become exercisable within 60 days after such date. |
(9) | Includes 15,085 shares of common stock underlying options held by Dr. Kaye that are exercisable as of March 31, 2020 or that will become exercisable within 60 days after such date. |
(10) | Consists of 1,540,691 shares held by Takeda Ventures, Inc., a wholly-owned indirect subsidiary of Takeda Pharmaceutical Company Limited. Takeda Ventures is owned directly by Takeda Pharmaceuticals U.S.A., Inc., which is owned directly by both Takeda Pharmaceutical Company Limited (58.09%) and Takeda Pharmaceuticals International AG (41.91%). Takeda Pharmaceuticals International AG is a wholly-owned direct subsidiary of Takeda Pharmaceutical Company Limited. Dr. Martin is the President of Takeda Ventures, and as such may be deemed to beneficially own such shares. Dr. Martin disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. |
(11) Consists of the shares described in footnotes 1 and 5 through 11 above.
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General
The following description summarizes some of the terms of our amended and restated certificate of incorporation and amended and restated bylaws, the registration 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 and registration rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.
Following the closing of this offering, our authorized capital stock will consist of shares of common stock, $0.0001 par value per share, and shares of preferred stock, $0.0001 par value per share.
Common Stock
As of December 31, 2019, there were 44,109,461 shares of our common stock outstanding and held of record by 108 stockholders, including 410,779 shares of restricted common stock which are subject to forfeiture or our right of repurchase, after giving effect to (i) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020 and (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into 37,804,563 shares of common stock, which will automatically occur immediately prior to the closing of this offering. Based on the number of shares of common stock outstanding as of December 31, 2019, and further assuming the issuance by us of shares of common stock in this offering, there will be shares of common stock outstanding upon 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 the supermajority votes for some matters, other matters shall be decided by the affirmative vote of our stockholders having a majority in voting power of the votes cast by the stockholders present or represented and voting on such matter. Our amended and restated certificate of incorporation and amended and restated bylaws also provide that our directors may be removed only for cause and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled to vote thereon. In addition, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled to vote thereon is required to amend or repeal, or to adopt any provision inconsistent with, several of the provisions of our amended and restated certificate of incorporation. See below under Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and BylawsAmendment of Charter Provisions.
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 the closing 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.
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Preferred Stock
Upon the closing of this offering, all of our previously outstanding shares of convertible preferred stock will have been converted into common stock, there will be no authorized shares of our previously outstanding convertible preferred stock, and we will have no shares of preferred stock outstanding. 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 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, deterring 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.
Warrants
On August 7, 2015, in connection with the Loan Agreement, we issued SVB a warrant to purchase 16,474 Series A preferred units at an exercise price of $2.2615 per unit (the SVB Series A Warrant). On June 9, 2017, in connection with the first amendment to the Loan Agreement, we issued SVB a warrant to purchase 19,918 common units at an exercise price of $0.25 per unit (the SVB Common Warrant and, together with the SVB Series A Warrant, the SVB Warrants). The SVB Series A Warrant and the SVB Common Warrant were converted into warrants to purchase 16,747 shares of Series A convertible preferred stock and 19,918 shares of common stock, respectively, in connection with our conversion into a corporation in April 2019, and the SVB Series A Warrant will become a warrant to purchase 16,474 shares common stock at an exercise price of $2.2615 per share in connection with this offering. The SVB Warrants contain a net exercise provision under which SVB 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 SVB Series A Warrant expires ten years from its date of issuance and the SVB Common Warrant expires seven years from its date of issuance.
Options
As of December 31, 2019, options to purchase 3,515,833 shares of our common stock were outstanding, of which 309,377 were vested and exercisable as of that date. For additional information regarding the terms of our 2013 Plan, see Executive and Director CompensationIncentive Award Plans2013 Equity Incentive Plan.
Registration Rights
As of December 31, 2019, upon the closing of this offering holders of shares of our common stock, which includes all of the shares of common stock issuable upon the automatic conversion convertible preferred stock immediately prior to the closing of this offering, will be entitled to the following rights with respect to the registration of such shares for public resale under the Securities Act, pursuant to registration rights agreement by and among us and certain investors. The registration of shares of common stock as a result of the following rights being exercised would enable holders to
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trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective.
Demand Registration Rights
Form S-1. If at any time beginning six months following the effective date of the registration statement of which this prospectus forms a part, the holders of at least 30% of the registrable securities request in writing that we effect a registration with respect to all or a part of the registrable securities then outstanding where the aggregate price to the public of the offering is $10.0 million or more, we may be required to provide notice to all holders of registrable securities and to use commercially reasonable efforts to effect such registration; provided, however, that we will not be required to effect such a registration if, among other things, within the preceding 12 months, we have already effected two registrations for the holders of registrable securities in response to these demand registration rights.
Form S-3. If at any time we become entitled under the Securities Act to register our shares on Form S-3, the holders of the registrable securities request in writing that we effect a registration with respect to all or a part of the registrable securities then outstanding where the price to the public of the offering is $1.0 million or more, we may be required to provide notice to all holders of registrable securities and to use commercially reasonable efforts to effect such registration; provided, however, that we will not be required to effect such a registration if, among other things, within the preceding 12 months, we have already effected two registrations on Form S-3 for the holders of registrable securities.
If the holders requesting registration intend to distribute their shares by means of an underwriting, the 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 following the closing of 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.
Indemnification
Our registration rights agreement contains customary cross indemnification provisions, under which we are obligated to indemnify holders of registrable securities in the event of material misstatements or omissions in a registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.
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 three years after the closing of this offering.
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
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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 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 of directors, 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 of Directors
Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, with one class being elected each year by our stockholders. For more information on the classified board of directors, see ManagementBoard Composition and Election of Directors. This system of electing directors may tend to discourage a third party from 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 except for cause and, in addition to any other vote required by law, upon the approval of not less than two thirds 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.
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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.
Choice of Forum
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative form, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders, creditors or other constituents; (iii) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware or our amended and restated certificate of incorporation or amended and restated bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or (v) any action asserting a claim governed by the internal affairs doctrine. The provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act Furthermore, our amended and restated certificate of incorporation will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. In any case, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. The enforceability of similar choice of forum provisions in other companies certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. Our amended and restated certificate of incorporation also provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision.
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 two thirds 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 of directors 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 . The transfer agent and registrars address is .
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Nasdaq Listing
We intend to apply to have our common stock listed on Nasdaq under the symbol RNA.
Limitations of Liability and Indemnification Matters
For a discussion of liability and indemnification, see Executive and Director CompensationLimitations of Liability and Indemnification Matters.
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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 intend to apply to have our common stock listed on Nasdaq, 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, 2019, and assuming (i) the issuance of shares in this offering, (ii) the issuance of 537,232 shares of our Series C convertible preferred stock in January 2020, (iii) the automatic conversion of all of our outstanding shares of convertible preferred stock into 37,804,563 shares of common stock and the related reclassification of the carrying value of the convertible preferred stock to permanent equity upon the closing of this offering, (iv) no exercise of the underwriters option to purchase additional shares of common stock and (v) no exercise or vesting of outstanding options, warrants or other rights, we will have outstanding an aggregate of 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.
Lock-Up Agreements
We, our officers, directors and holders of substantially all of our securities, have agreed with the underwriters that for a period of 180 days, after the date of this prospectus, subject to specified exceptions, we or they will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to sell, or otherwise dispose of or transfer any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, request or demand that we file a registration statement related to our common stock or enter into any swap or other agreement that transfers to another, in whole or in part, directly or indirectly, the economic consequence of ownership of the common stock. Upon expiration of the lock-up period, certain of our stockholders will have the right to require us to register their shares under the Securities Act. See Registration Rights below and Description of Capital StockRegistration Rights.
Cowen and Company LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC may, in their sole discretion and at any time or from time to time before the termination of the lock-up period, in certain cases 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 lock-up 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 10b5-1 Trading Plans
Following the closing of this offering, certain of our officers, directors and significant stockholders may adopt written plans, known as Rule 10b5-1 trading plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis to diversify their assets and investments. Under these 10b5-1 trading plans, a broker may execute trades pursuant to parameters established by the officer, director or stockholder when entering into the plan, without further direction from such officer, director or stockholder. Such sales would not commence until the expiration of the applicable lock-up agreements entered into by such officer, director or stockholder in connection with this offering.
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 Nasdaq 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 SEC and Nasdaq 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.
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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 these 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, 2019, upon the closing of this offering 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 into 37,804,563 shares of our common stock immediately prior to the closing of this offering, 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 purchase by our 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
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the IRS), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership and disposition of our common stock.
This discussion is limited to Non-U.S. Holders that 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 U.S. federal income tax consequences relevant to a Non-U.S. Holders particular circumstances, including the impact of the Medicare contribution tax on net investment income or the alternative minimum tax. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
● | U.S. expatriates and former citizens or long-term residents of the United States; |
● | persons holding 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; |
● | banks, insurance companies, and other financial institutions; |
● | brokers, dealers or traders in securities; |
● | controlled foreign corporations, passive foreign investment companies, and corporations that accumulate earnings to avoid U.S. federal income tax; |
● | partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein); |
● | tax-exempt organizations or governmental organizations; |
● | persons deemed to sell our common stock under the constructive sale provisions of the Code; |
● | persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
● | persons subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into account in an applicable financial statement (as defined in the Code); |
● | tax-qualified retirement plans; and |
● | qualified foreign pension funds as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds. |
If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION
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OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a Non-U.S. Holder is any beneficial owner of our common stock that is neither a U.S. person nor an entity or arrangement treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
● | an individual who is a citizen or resident of the United States; |
● | a corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; |
● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
● | a trust that (i) is subject to the primary supervision of a U.S. court and the control of one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (ii) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. |
Distributions
As described in 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 distributions of cash or property on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holders adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under Sale or Other Taxable Disposition.
Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder of our common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). If a 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 the applicable withholding agent, either directly or through other intermediaries. A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies 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 their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment or fixed base in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States.
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Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, 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.
Sale or Other Taxable Disposition
A Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our common stock unless:
● | the gain is effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment or fixed base in the United States to which such gain is attributable); |
● | 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 disposition and certain other requirements are met; or |
● | our common stock constitutes a U.S. real property interest (USRPI), by reason of our status as a U.S. real property holding corporation (USRPHC), for U.S. federal income tax purposes. |
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the Non-U.S. Holder is not considered a resident of the United States), provided 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 we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to U.S. federal income tax if our common stock is regularly traded, as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, 5% or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holders holding period. If we are a USRPHC and either our common stock is not regularly traded on an established securities market or a Non-U.S. Holder holds, or is treated as holding, more than 5% of our outstanding common stock, directly or indirectly, during the applicable testing period, such Non-U.S. Holder will generally be taxed on any gain in the same manner as gain that is effectively connected with the conduct of a U.S. trade or business, except that the branch profits tax generally will not apply. If we are a USRPHC and our common stock is not regularly traded on an established securities market, a Non-U.S. Holders proceeds received on the disposition of shares will also generally be subject to withholding at a rate of 15%. Prospective investors are encouraged to consult their own tax advisors regarding the possible consequences to them if we are, or were to become, a USRPHC.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
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Information Reporting and Backup Withholding
Payments of dividends on our common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of our common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
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 U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections are commonly referred to as the Foreign Account Tax Compliance Act (FATCA)) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or subject to the proposed Treasury Regulations discussed below, gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or a non-financial foreign entity (each as defined in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the non-financial foreign entity either certifies it does not have any substantial United States owners (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (iii) the foreign financial institution or non-financial foreign 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 U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain specified United States persons or United States owned foreign entities (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our common stock. While withholding under FATCA would also have applied to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
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We and Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC, as the representatives of the several underwriters for the offering named below, have entered into an underwriting agreement with respect to the common stock being offered. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally, and not jointly, agreed to purchase from us the number of shares of our common stock set forth opposite its name below.
Underwriter |
Number of Shares |
|||
Cowen and Company, LLC |
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SVB Leerink LLC |
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Credit Suisse Securities (USA) LLC |
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Wells Fargo Securities, LLC |
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|
|
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Total |
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|
|
The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased, other than those shares covered by the option to purchase additional shares described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Option to Purchase Additional Shares. We have granted to the underwriters an option to purchase up to additional shares of our common stock at the public offering price, less the underwriting discount. This option is exercisable for a period of 30 days. To the extent that the underwriters exercise this option, the underwriters will purchase additional shares from us in approximately the same proportion as shown in the table above.
Discounts and Commissions. The following table shows the public offering price, underwriting discount and commissions and proceeds, before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
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We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $ . We also have agreed to reimburse the underwriters for up to $ for their FINRA counsel fee. In accordance with FINRA Rule 5110, this reimbursed fee is deemed underwriting compensation for this offering.
Total | ||||||||||||
Per Share | Without Option to Purchase Additional Shares |
With Full Option to Purchase Additional Shares |
||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discount |
$ | $ | $ | |||||||||
Proceeds, before expenses, to us |
$ | $ | $ |
The underwriters propose to offer the shares of our common stock to the public at the public offering price set forth on the cover page of this prospectus. The underwriters may offer the shares of our common stock to securities dealers at the public offering price less a concession not in excess of $ per share. If all of the shares are not sold at the public offering price, the underwriters may change the offering price and other selling terms.
Discretionary Accounts. The underwriters do not intend to confirm sales of the shares to any accounts over which they have discretionary authority.
Market Information. Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In addition to prevailing market conditions, the factors to be considered in these negotiations will include:
● | the history of, and prospects for, our company and the industry in which we compete; |
● | our past and present financial information; |
● | an assessment of our management; its past and present operations, and the prospects for, and timing of, our future revenues; |
● | the present state of our development; and |
● | the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
We intend to apply for the quotation of our common stock on the Nasdaq Global Market under the symbol RNA.
Stabilization. In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.
● | Stabilizing transactions permit bids to purchase shares of our common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. |
● | Overallotment transactions involve sales by the underwriters of shares of our common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a |
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syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase pursuant to the option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares that the underwriters have the option to purchase. The underwriters may close out any short position by exercising their option to purchase additional shares and/or purchasing shares in the open market. |
● | Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the option to purchase additional shares. If the underwriters sell more shares than could be covered by exercise of the option to purchase additional shares and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. |
● | Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. 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 our common stock. These transactions may be effected on Nasdaq, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive Market Making. In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on Nasdaq in accordance with Rule 103 of Regulation M under the Exchange Act, as amended, during a period before the commencement of offers or sales of common stock and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market makers bid, such bid must then be lowered when specified purchase limits are exceeded.
Lock-Up Agreements. Pursuant to certain lock-up agreements, we and our executive officers, directors and substantially all of our other securityholders, have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic consequence of ownership of, directly or indirectly, or make any demand or request or exercise any right with respect to the registration of, or file with the SEC a registration statement under the Securities Act relating to, any common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written consent of Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC for a period of 180 days after the date of the pricing of the offering.
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for common stock. It also applies to common stock owned now or acquired later by the
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person executing the agreement or for which the person executing the agreement later acquires the power of disposition. The exceptions permit us, among other things and subject to restrictions, to: (i) issue common stock or options pursuant to employee benefit plans, (ii) issue common stock upon exercise of outstanding options or warrants (iii) issue securities in connection with acquisitions or similar transactions, or (iv) file registration statements on Form S-8. The exceptions permit parties to the lock-up agreements, among other things and subject to restrictions, to: (a) make certain gifts, (b) if the party is a corporation, partnership, limited liability company or other business entity, make transfers to any stockholders, partners, members of, or owners of similar equity interests in, the party, or to an affiliate of the party, if such transfer is not for value, (c) if the party is a corporation, partnership, limited liability company or other business entity, make transfers in connection with the sale or transfer of all of the partys capital stock, partnership interests, membership interests or other similar equity interests, as the case may be, or all or substantially all of the partys assets, in any such case not undertaken for the purpose of avoiding the restrictions imposed by the lock-up agreement, (d) enter into transactions relating to shares of our common stock acquired in open market transactions after completion of the offering, provided that no public announcement or filing is required to be made regarding such transaction during the 180-day lock-up period, (e) enter into a 10b5-1 trading plan, provided that such plan does not permit the sale of any common stock during the 180-day lock-up period and no public announcement or filing is made regarding such plan during the 180-day lock-up period, (f) make transfers to us to satisfy tax withholding obligations pursuant to our equity incentive plans disclosed in this prospectus, (g) make transfers pursuant to court or regulatory agency order, a qualified domestic order or in connection with a divorce settlement, (h) make transfers pursuant to agreements that provide for the repurchase by us or the forfeiture of securities, (i) transfers pursuant to third-party tender offer, merger, consolidation or other similar transaction, (j) the conversion of the outstanding shares of our convertible preferred stock into shares of our common stock in connection with the consummation of the offering. In addition, the lock-up provision will not restrict broker-dealers from engaging in market making and similar activities conducted in the ordinary course of their business.
Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC, in their sole discretion, may release our common stock and other securities subject to the lock-up agreements described above in whole or in part at any time. When determining whether or not to release our common stock and other securities from lock-up agreements, Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC will consider, among other factors, the holders reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time of the request. In the event of such a release or waiver for one of our directors or officers, Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC shall provide us with notice of the impending release or waiver at least three business days before the effective date of such release or waiver and we will announce the impending release or waiver by issuing a press release at least two business days before the effective date of the release or waiver.
Electronic Offer, Sale and Distribution of Shares. A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. Cowen and Company, LLC, SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
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Other Relationships. Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees. SVB, an affiliate of SVB Leerink LLC, is a lender under our debt facility and holds warrants to purchase shares of our common stock.
Selling Restrictions
Canada. The common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
United Kingdom. In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Regulation) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares in the United Kingdom within the meaning of the Financial Services and Markets Act 2000.
Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
Switzerland. This document is not intended to constitute an offer or solicitation to purchase or invest in the shares. The shares may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (FinSA) and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading venue (exchange or multilateral trading facility) in Switzerland. Neither this document nor any other offering or marketing material relating to the shares of our common stock constitutes a prospectus within the meaning of, and has been prepared without regard to, the FinSA, 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 venue (exchange or multilateral trading facility in Switzerland). Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
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Neither this document nor any other offering or marketing material relating to the offering, the Company or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
European Economic Area. In relation to each Member State of the European Economic Area and the United Kingdom (each, a Relevant State), no shares have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except it may make an offer to the public in that Relevant State of any shares at any time under the following exemptions under the Prospectus Regulation:
(i) | to any legal entity which is a qualified investor as defined under the Prospectus Regulation; |
(ii) | to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the underwriters for any such offer; or |
(iii) | in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of shares shall require the Company or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation.
For the purposes of this provision, the expression an offer to the public in relation to shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, and the expression Prospectus Regulation means Regulation (EU) 2017/1129.
Hong Kong. The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (i) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the SFO) of Hong Kong and any rules made thereunder; or (ii) in other circumstances which do not result in the document being a prospectus as defined in the Companies ((Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong) (the CO) or which do not constitute an offer to the public within the meaning of the CO. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the SFO and any rules made thereunder.
Singapore. Each representative has acknowledged that this prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each representative has represented and agreed that it has not offered or sold any shares or caused the shares to be made the subject of an invitation for subscription or purchase and will not offer or sell any shares or cause the shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or any other document or material in
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connection with the offer or sale, or invitation for subscription or purchase, of the shares, whether directly or indirectly, to any person in Singapore other than:
(i) | to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the SFA)) pursuant to Section 274 of the SFA; |
(ii) | to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or |
(iii) | otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. |
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(i) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(ii) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries rights and interest (however described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) | to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) | where no consideration is or will be given for the transfer; |
(c) | where the transfer is by operation of law; |
(d) | as specified in Section 276(7) of the SFA; or |
(e) | as specified in Regulation 37A of the Securities and Futures (Offers of Investments)(Securities and Securities-based Derivatives Contracts) Regulations 2018. |
Singapore SFA Product ClassificationIn connection with Section 309B of the SFA and the CMP Regulations 2018, unless otherwise specified before an offer of shares, we have determined, and hereby notify all relevant persons (as defined in Section 309A(1) of the SFA), that the shares are prescribed capital markets products (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Israel. In the State of Israel this prospectus shall not be regarded as an offer to the public to purchase shares of our common stock under the Israeli Securities Law, 5728-1968, which requires a prospectus to be published and authorized by the Israel Securities Authority, if it complies with certain provisions of Section 15 of the Israeli Securities Law, 5728-1968, including, inter alia, if: (i) the offer is made, distributed or directed to not more than 35 investors, subject to certain conditions (the Addressed Investors); or (ii) the offer is made, distributed or directed to certain qualified investors defined in the First Addendum of the Israeli Securities Law, 5728-1968, subject to certain conditions (the Qualified Investors). The Qualified Investors shall not be taken into account in the count of the Addressed Investors and may be offered to purchase securities in addition to the 35 Addressed Investors. The company has not and will not take any action that would require it to publish a
198
prospectus in accordance with and subject to the Israeli Securities Law, 5728-1968. We have not and will not distribute this prospectus or make, distribute or direct an offer to subscribe for our common stock to any person within the State of Israel, other than to Qualified Investors and up to 35 Addressed Investors.
Qualified Investors may have to submit written evidence that they meet the definitions set out in of the First Addendum to the Israeli Securities Law, 5728-1968. In particular, we may request, as a condition to be offered common stock, that Qualified Investors will each represent, warrant and certify to us and/or to anyone acting on our behalf: (i) that it is an investor falling within one of the categories listed in the First Addendum to the Israeli Securities Law, 5728-1968; (ii) which of the categories listed in the First Addendum to the Israeli Securities Law, 5728-1968 regarding Qualified Investors is applicable to it; (iii) that it will abide by all provisions set forth in the Israeli Securities Law, 5728-1968 and the regulations promulgated thereunder in connection with the offer to be issued common stock; (iv) that the shares of our common stock that it will be issued are, subject to exemptions available under the Israeli Securities Law, 5728-1968: (a) for its own account; (b) for investment purposes only; and (c) not issued with a view to resale within the State of Israel, other than in accordance with the provisions of the Israeli Securities Law, 5728-1968; and (v) that it is willing to provide further evidence of its Qualified Investor status. Addressed Investors may have to submit written evidence in respect of their identity and may have to sign and submit a declaration containing, inter alia, the Addressed Investors name, address and passport number or Israeli identification number.
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on our behalf, other than offers made by the underwriters and their respective affiliates, with a view to the final placement of the securities as contemplated in this document. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of shares on our behalf or on behalf of the underwriters.
199
The validity of the shares of common stock offered hereby will be passed upon for us by Latham & Watkins LLP, San Diego, California. The underwriters are being represented by Cooley LLP, San Diego, California.
The financial statements as of December 31, 2018 and 2019 and for the years then ended included in this Prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our 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 our 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 the closing of this offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. The SEC maintains an Internet website that contains reports, proxy statements and other information about registrants, like us, that file electronically with the SEC. The address of that site is www.sec.gov.
Upon the closing of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available at the website of the SEC referred to above. We maintain a website at www.aviditybiosciences.com. Upon the closing of this offering, you may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The reference to our website address does not constitute incorporation by reference of the information contained on our website, and you should not consider the contents of our website in making an investment decision with respect to our common stock.
200
INDEX TO FINANCIAL STATEMENTS
F-2 | ||||
F-3 | ||||
F-4 | ||||
Statements of Convertible Preferred Stock/Units and Stockholders/Members Deficit |
F-5 | |||
F-6 | ||||
F-7 |
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Avidity Biosciences, Inc.
San Diego, California
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Avidity Biosciences, Inc. (the Company) as of December 31, 2018 and 2019, the related statements of operations, convertible preferred stock/units and stockholders/members deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Emphasis of a Matter - Coronavirus
As more fully described in Note 10 to the financial statements, the Company may be impacted by the outbreak of a novel coronavirus (COVID-19), which was declared a global pandemic by the World Health Organization in March 2020.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Companys auditor since 2016.
San Diego, California
April 3, 2020
F-2
Avidity Biosciences, Inc.
(in thousands, except share data and par value)
December 31, | Pro Forma December 31, 2019 |
|||||||||||
2018 | 2019 | |||||||||||
(unaudited) | ||||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
$ | 3,090 | $ | 94,578 | ||||||||
Prepaid expenses and other current assets |
152 | 1,098 | ||||||||||
|
|
|
|
|||||||||
Total current assets |
3,242 | 95,676 | ||||||||||
Property and equipment, net |
702 | 631 | ||||||||||
Other assets |
38 | 600 | ||||||||||
|
|
|
|
|||||||||
Total assets |
$ | 3,982 | $ | 96,907 | ||||||||
|
|
|
|
|||||||||
Liabilities, Convertible Preferred Stock/Units and Stockholders/Members Equity (Deficit) |
||||||||||||
Current liabilities |
||||||||||||
Accounts payable and accrued liabilities |
$ | 1,565 | $ | 2,308 | ||||||||
Accrued compensation |
305 | 1,314 | ||||||||||
Deferred revenue |
| 3,840 | ||||||||||
Long-term debt, current portion |
2,746 | 2,774 | ||||||||||
|
|
|
|
|||||||||
Total current liabilities |
4,616 | 10,236 | ||||||||||
Other long-term liabilities |
224 | 45 | $ | | ||||||||
Lease liability, long term |
| 393 | ||||||||||
Deferred revenue |
| 15,100 | ||||||||||
Convertible notes |
3,184 | | ||||||||||
Long-term debt, net of current portion |
4,394 | 1,770 | ||||||||||
Commitments and contingencies (Note 7) |
||||||||||||
Convertible preferred units12,828,990 and no units authorized at December 31, 2018 and 2019, respectively; 12,458,770 and no units issued at December 31, 2018 and 2019, respectively; liquidation preferences of $32.8 million and $0 at December 31, 2018 and 2019, respectively |
32,693 | | ||||||||||
Convertible preferred stock$0.0001 par value; no shares and 38,054,628 shares authorized at December 31, 2018 and 2019, respectively; no shares and 37,267,331 shares issued at December 31, 2018 and 2019, respectively; liquidation preferences of $0 and $139.0 million at December 31, 2018 and 2019, respectively; no shares issued and outstanding, pro forma (unaudited) |
| 134,720 | | |||||||||
Stockholders/members equity (deficit): |
||||||||||||
Common units21,500,000 and no units authorized as of December 31, 2018 and 2019, respectively; 5,994,758 and no units issued and outstanding at December 31, 2018 and December 31, 2019, respectively |
426 | | | |||||||||
Common stock$0.0001 par value; no shares and 52,042,016 shares authorized as of December 31, 2018 and 2019, respectively; no shares and 6,304,898 shares issued and outstanding at December 31, 2018 and December 31, 2019, respectively; 44,109,461 shares issued and outstanding as of December 31, 2019, pro forma (unaudited) |
| 1 | 4 | |||||||||
Additional-paid in capital |
| (43,173 | ) | 93,889 | ||||||||
Predecessors deficit |
(41,555 | ) | | | ||||||||
Accumulated deficit |
| (22,185 | ) | (22,185 | ) | |||||||
|
|
|
|
|
|
|||||||
Total stockholders/members equity (deficit) |
(41,129 | ) | (65,357 | ) | $ | 71,708 | ||||||
|
|
|
|
|
|
|||||||
Total liabilities, convertible preferred stock/units and stockholders/members equity (deficit) |
$ | 3,982 | $ | 96,907 | ||||||||
|
|
|
|
See accompanying notes to financial statements.
F-3
Avidity Biosciences, Inc.
(in thousands, except share/unit and per share/unit data)
Year Ended December 31, | ||||||||
2018 | 2019 | |||||||
Revenue |
||||||||
Collaboration and contract research |
$ | 379 | $ | 2,319 | ||||
|
|
|
|
|||||
Total revenue |
379 | 2,319 | ||||||
Operating expenses |
||||||||
Research and development |
8,436 | 14,539 | ||||||
General and administrative |
2,441 | 5,112 | ||||||
|
|
|
|
|||||
Total operating expense |
10,877 | 19,651 | ||||||
|
|
|
|
|||||
Loss from operations |
(10,498 | ) | (17,332 | ) | ||||
Interest and other expense |
||||||||
Interest and other expense |
(718 | ) | (7,387 | ) | ||||
Change in fair value of preferred warrant liabilities |
| (15 | ) | |||||
|
|
|
|
|||||
Total interest and other expense |
(718 | ) | (7,402 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (11,216 | ) | $ | (24,734 | ) | ||
|
|
|
|
|||||
Net loss per share/unit, basic and diluted |
$ | (2.15 | ) | $ | (4.32 | ) | ||
|
|
|
|
|||||
Weighted-average shares/units outstanding, basic and diluted |
5,224,812 | 5,724,115 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted (unaudited) (Note 2) |
$ | (0.68 | ) | |||||
|
|
|||||||
Pro forma weighted-average shares outstanding, basic and diluted (unaudited) (Note 2) |
26,224,719 | |||||||
|
|
See accompanying notes to financial statements.
F-4
Avidity Biosciences, Inc.
Statements of Convertible Preferred Stock/Units and Stockholders/Members Deficit
(in thousands, except shares/units and per share/unit data)
Preferred Units | Convertible Preferred Stock |
Common Units | Common Stock | Additional Paid-in Capital |
Accumulated Deficit |
Predecessors Deficit |
Total Stockholders/ Members Deficit |
|||||||||||||||||||||||||||||||||||||||||||||
Units | Amount | Shares | Amount | Units | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 |
12,458,770 | $ | 32,693 | | $ | | 5,339,686 | $ | 267 | | $ | | $ | | $ | | $ | (30,339 | ) | $ | (30,072 | ) | ||||||||||||||||||||||||||||||
Issuance of common units upon exercise of unit options |
| | | | 655,072 | 67 | | | | | | 67 | ||||||||||||||||||||||||||||||||||||||||
Vesting of early exercise options |
| | | | | 32 | | | | | | 32 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | 60 | | | | | | 60 | ||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (11,216 | ) | (11,216 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Balance at December 31, 2018 |
12,458,770 | 32,693 | | | 5,994,758 | 426 | | | | | (41,555 | ) | (41,129 | ) | ||||||||||||||||||||||||||||||||||||||
Distribution to members |
| (106 | ) | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Issuance of common units upon exercise of unit options |
| | | | 165,175 | 38 | | | | | | 38 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | 17 | | | | | | 17 | ||||||||||||||||||||||||||||||||||||||||
Net loss to date of conversion |
| | | | | | | | | | (2,549 | ) | (2,549 | ) | ||||||||||||||||||||||||||||||||||||||
Conversion from LLC to C corporation |
(12,458,770 | ) | (32,587 | ) | 12,458,770 | 32,587 | (6,159,933 | ) | (481 | ) | 6,159,933 | 1 | (43,624 | ) | | 44,104 | | |||||||||||||||||||||||||||||||||||
Issuance of Series C convertible preferred stock, net of issuance costs of $4.1 million |
| | 17,915,525 | 72,623 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
Issuance of Series C convertible preferred stock upon conversion of convertible notes |
| | 6,893,036 | 29,510 | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options |
| | | | | | 144,965 | | 26 | | | 26 | ||||||||||||||||||||||||||||||||||||||||
Vesting of early exercise options |
| | | | | | | | 36 | | | 36 | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | | | | 389 | | | 389 | ||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (22,185 | ) | | (22,185 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Balance at December 31, 2019 |
| $ | | 37,267,331 | $ | 134,720 | | $ | | 6,304,898 | $ | 1 | $ | (43,173 | ) | $ | (22,185 | ) | $ | | $ | (65,357 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-5
Avidity Biosciences, Inc.
(in thousands)
Year Ended December 31, |
||||||||
2018 | 2019 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (11,216 | ) | $ | (24,734 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
||||||||
Depreciation |
383 | 348 | ||||||
Stock-based compensation expenses |
60 | 406 | ||||||
Amortization of discounts and loan issuance costs |
73 | 71 | ||||||
Non-cash interest |
374 | 7,027 | ||||||
Non-cash lease expense |
| 249 | ||||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses and other assets |
12 | (949 | ) | |||||
Accounts payable and accrued liabilities |
780 | 451 | ||||||
Accrued compensation related expenses |
127 | 1,010 | ||||||
Change in lease liability |
| (329 | ) | |||||
Deferred rent |
(7 | ) | | |||||
Deferred revenue |
(241 | ) | 18,940 | |||||
|
|
|
|
|||||
Net cash (used in) provided by operating activities |
(9,655 | ) | 2,490 | |||||
Cash flows from investing activities |
||||||||
Purchase of property and equipment |
(49 | ) | (235 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(49 | ) | (235 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from the issuance of common stock/units, net of repurchases |
162 | 65 | ||||||
Proceeds from long-term debt, net of issuance costs |
1,994 | | ||||||
Payment on long-term debt |
| (2,800 | ) | |||||
Distributions to members |
| (106 | ) | |||||
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs |
| 72,623 | ||||||
Proceeds from issuance of convertible notes, net of issuance costs |
2,988 | 19,451 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
5,144 | 89,233 | ||||||
Net (decrease) increase in cash and cash equivalents |
(4,560 | ) | 91,488 | |||||
Cash and cash equivalents at beginning of year |
7,650 | 3,090 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of year |
$ | 3,090 | $ | 94,578 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid for interest |
$ | 291 | $ | 322 | ||||
|
|
|
|
|||||
Supplemental schedule of non-cash investing and financing activities |
||||||||
Issuance of Series C convertible preferred stock upon conversion of outstanding convertible notes |
$ | | $ | 29,510 | ||||
Right-of-use asset |
$ | | $ | 807 | ||||
Costs incurred, but not paid, in connection with capital expenditures included in accounts payable |
$ | | $ | 43 |
See accompanying notes to financial statements.
F-6
Avidity Biosciences, Inc.
1. Business and Business Organization
Description of Business
Avidity Biosciences, Inc. (the Company or Avidity) is a biopharmaceutical company pioneering a new class of oligonucleotide-based therapies called Antibody Oligonucleotide Conjugates (AOCs) designed to overcome the current limitations of oligonucleotide-based therapies in order to treat a wide range of serious diseases. The Company utilizes its proprietary AOC platform to design, engineer and develop therapeutics that combine the tissue selectivity of monoclonal antibodies (mAbs) and the precision of oligonucleotide-based therapies.
Formation and Conversion
The Company was formed under the laws of the State of Delaware as Avidity Biosciences LLC in November 2012, and in April 2019, pursuant to an Agreement and Plan of Conversion, Avidity Biosciences LLC a Delaware limited liability company (Avidity LLC), was converted into Avidity Biosciences, Inc., a Delaware corporation. The entire membership interests of Avidity LLC were converted into securities of Avidity Biosciences, Inc. as follows: (i) each outstanding common unit of Avidity LLC was converted into one share of Avidity Biosciences, Inc.s common stock; (ii) each outstanding Series A convertible preferred unit of Avidity LLC converted into one share of Avidity Biosciences, Inc.s Series A preferred stock; and (iii) each outstanding Series B preferred unit of Avidity Biosciences LLC converted into one share of Avidity Biosciences, Inc.s Series B convertible preferred stock. All the property, rights, privileges, powers and franchises of Avidity LLC vested in Avidity Biosciences, Inc., and all debts, liabilities and duties of Avidity LLC became debts, liabilities and duties of Avidity Biosciences, Inc. Outstanding convertible notes, warrants and stock awards under Avidity LLCs employee benefit and incentive compensation plans continued on the same terms and conditions and became binding upon Avidity Biosciences, Inc.
Liquidity and Capital Resources
As of December 31, 2019, the Company has devoted substantially all of its resources to organizing and staffing the company, business planning, raising capital, developing its proprietary AOC platform, identifying potential product candidates, establishing its intellectual property and conducting research and preclinical studies, and providing other general and administrative support for these operations. In addition, the Company has a limited operating history, has incurred operating losses since inception and expects that it will continue to incur net losses into the foreseeable future as it continues the development of its product candidates and development programs. As of December 31, 2019, the Company had an accumulated deficit of $22.2 million and cash and cash equivalents of $94.6 million. Based on the Companys current business plan, management believes that existing cash and cash equivalents will be sufficient to fund the Companys obligations for at least 12 months after these financial statements are issued.
The Company plans to finance its future cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or delay or reduce the scope of its planned development programs. Any of these actions could materially harm the Companys business, results of operations and future prospects.
F-7
Avidity Biosciences, Inc.
Notes to Financial Statements
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Companys financial statements and accompanying notes. Although these estimates are based on the Companys knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.
On an ongoing basis, management evaluates its estimates, primarily related to revenue recognition, stock-based compensation, fair value of common stock, and accrued research and development costs. These estimates are based on historical data and experience, as well as various other factors that management believes to be 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. Estimates relating to the valuation of stock require the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs.
Unaudited Pro Forma Information
The unaudited pro forma information as of December 31, 2019 has been prepared to give effect to (i) the receipt of aggregate gross proceeds of $2.3 million from the sale of 537,232 shares of Series C convertible preferred stock in January 2020 (Note 10), (ii) the automatic conversion of all of the outstanding shares of the Company convertible preferred stock into 37,804,563 shares of the Companys common stock, including the conversion of the 537,232 shares sold in January 2020, and (iii) the related reclassification of the carrying value of the convertible preferred stock and preferred stock warrant liabilities to permanent equity, all of which will occur immediately prior to the completion of the Companys planned initial public offering (IPO). The unaudited pro forma information does not reflect any pro forma adjustments for common stock to be issued in conjunction with the IPO or any related estimated net proceeds.
Unaudited pro forma net loss per common share is computed using the weighted-average number of common shares outstanding after giving effect to the conversion of all the outstanding convertible preferred stock and convertible notes into shares of common stock as if such conversion had occurred at the beginning of the period presented, or the date of original issuance, if later.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The cash and cash equivalents balance at December 31, 2018 and 2019 represents cash in readily available checking and money market accounts.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash deposits. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
F-8
Avidity Biosciences, Inc.
Notes to Financial Statements
Preferred Stock Warrant Liabilities
The Company has outstanding freestanding warrants to purchase shares of its Series A convertible preferred stock. Since the underlying Series A convertible preferred stock is classified outside of permanent equity, these preferred stock warrants are classified as other long-term liabilities in the accompanying balance sheets. The Company adjusts the carrying value of such preferred stock warrants to their estimated fair value at each reporting date, with any related increases or decreases in the fair value recorded as an increase or decrease to other income (expense) in the statements of operations. The preferred stock warrant liabilities will continue to be adjusted to fair value until such time as the preferred stock warrants are no longer outstanding or the underlying securities are no longer redeemable outside the control of the Company.
Fair Value of Financial Instruments
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1 | Quoted prices in active markets for identical assets or liabilities |
Level 2 | Observable inputs, such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
Level 3Unobservable | inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
None of the Companys non-financial assets are recorded at fair value on a non-recurring basis. Financial liabilities that are measured at fair value on a recurring basis include the preferred stock warrant liabilities. No transfers between levels have occurred during the periods presented. The carrying amounts reflected in the Companys balance sheets for prepaid expenses and other current assets, accounts payable and accrued liabilities approximate their fair values due to their short-term nature. The carrying value of the Companys debt approximates fair value due to the interest being reflective of current market rates for debt with similar terms and conditions.
The preferred stock warrant liabilities are recorded at fair value utilizing the Black-Scholes option pricing model using significant unobservable inputs adjusted for the preferred stock warrants expected life and the fair value of the underlying preferred stock.
F-9
Avidity Biosciences, Inc.
Notes to Financial Statements
The following table provides a reconciliation of the preferred stock warrant liabilities measured at fair value using Level 3 unobservable inputs (in thousands):
Balance at December 31, 2017 and 2018 |
$ | 30 | ||
Change in fair value |
15 | |||
|
|
|||
Balance at December 31, 2019 |
$ | 45 | ||
|
|
Property and Equipment, Net
Property and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the related assets, which ranges from three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term. Repairs and maintenance charges that do not increase the useful life of the assets are charged to operating expenses as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The Company has not recognized any impairment losses in any of the periods presented in these financial statements.
Segment Information
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. The Company manages its operations as a single operating segment in the United States for the purposes of assessing performance and making operating decisions.
Revenue Recognition
To date, all the Companys revenues has been derived from collaboration and research agreements (Note 3). The terms of these arrangements include the following types of payments to the Company: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for research and development services provided by the Company or for manufacturing supply services the Company provides through its contract manufacturers; and royalties on net sales of licensed products.
Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes all existing revenue recognition requirements, using the modified retrospective approach. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. An adjustment to retained earnings was not required upon adoption as the Company had no revenue generating agreements in effect on the date of adoption.
In accordance with ASU 2014-09, the Company performs the following steps in determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of these
F-10
Avidity Biosciences, Inc.
Notes to Financial Statements
agreements: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, the Company satisfies each performance obligation. See Note 3 for further discussion.
Prior to January 1, 2019, the Company recognized revenues when all four of the following criteria were met: (i) persuasive evidence that an arrangement exists, (ii) delivery of the products and/or services has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured. The Companys research evaluation agreement contains multiple elements, including payments for reimbursement of internal and third parties development costs. The Company considers a variety of factors in determining the appropriate method of revenue recognition under these arrangements.
The Company receives payments from its collaborators based on billing schedules established in each contract. Up-front and other payments may require deferral of revenue recognition to a future period until the Company performs its obligations under its research and collaboration arrangements. Amounts are recorded as accounts receivable when the Companys right to consideration is unconditional.
Research and Development Costs
Research and development costs are expensed as incurred and include salaries, benefits and stock-based compensation associated with research and development personnel, third-party research and development expenses, license fees, laboratory supplies, facilities, overhead costs, and consultants. Nonrefundable advance payments for goods and services that will be used in future research and development activities are capitalized and recorded as expense in the period that the Company receives the goods or when services are performed.
Upfront and milestone payments to acquire contractual rights to licensed technology are recorded when incurred if there is uncertainty in the Company receiving future economic benefit from the acquired contractual rights.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.
Income Taxes
Income taxes are recorded using the asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of Accounting Standards Codification (ASC) 740, Income Taxes. When uncertain tax positions exist, the Company
F-11
Avidity Biosciences, Inc.
Notes to Financial Statements
recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
Deferred tax assets and liabilities reflect the future tax consequences of the differences between the financial reporting and tax bases of assets and liabilities using current enacted tax rates. Valuation allowances are recorded when the realizability of such deferred tax assets does not meet a more-likely-than-not threshold. For tax benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company is subject to taxation in the United States and state jurisdictions. As of December 31, 2019, the Companys tax years since inception are subject to examination by taxing authorities.
Stock-Based Compensation
The Company expenses stock-based compensation to employees and non-employees over the requisite service period (usually the vesting period) on a straight-line basis, net of actual forfeitures during the period, based on the estimated grant-date fair value of the awards. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent managements best estimates and involve inherent uncertainties and the application of managements judgment.
Net Loss Per Share/Unit
Basic net loss per share/unit is calculated by dividing the net loss attributable to common stock/units by the weighted-average number of common stock/units outstanding for the period. Diluted net loss per stock/unit attributable to common stock/units is computed dividing the diluted net loss attributable to common stock/units by the weighted-average number of common stock/units outstanding for the period, including potential dilutive common stock/units. The Company has excluded 488,998 and 458,868 weighted-average shares/units subject to repurchase or forfeiture from the weighted-average number of common shares/units outstanding for the years ended December 31, 2018 and 2019, respectively. For purpose of this calculation, outstanding stock/unit options, warrants to purchase convertible preferred stock/units, convertible promissory notes, and convertible preferred stock/units are only included in the calculation of diluted net loss per share/unit when their effect is dilutive.
F-12
Avidity Biosciences, Inc.
Notes to Financial Statements
Basic and diluted net loss attributable to common holders per share/unit is presented in conformity with the two class method required for participating securities as the convertible preferred stock/units and warrants to purchase Series A convertible stock/units are considered participating securities. The Companys participating securities do not have a contractual obligation to share in the Companys losses. As such, the net loss was attributed entirely to common holders. Accordingly, for the years ended December 31, 2018 and 2019, there is no difference in the number of shares/units used to calculate basic and diluted shares outstanding. In addition to the convertible promissory notes that were outstanding at December 31, 2018, the following securities that could potentially decrease net loss per share/unit in the future are not included in the determination of diluted loss per share/unit as their effect is anti-dilutive (in thousands):
December 31, | ||||||||
2018 | 2019 | |||||||
Outstanding convertible preferred stock/units |
12,459 | 37,267 | ||||||
Outstanding warrants to purchase convertible preferred stock/units |
16 | 16 | ||||||
Outstanding warrants to purchase common stock/units |
20 | 20 | ||||||
Outstanding common stock/units options |
632 | 3,516 | ||||||
|
|
|
|
|||||
Total |
13,127 | 40,819 | ||||||
|
|
|
|
Unaudited Pro Forma Net Loss Per Share
The following table summarizes the Companys unaudited pro forma net loss per share for the year ended December 31, 2019 (in thousands, except share and per share data):
Numerator |
Net loss attributable to common stockholders |
$ | (24,734 | ) | |
Add: |
||||
Change in fair value of preferred stock warrant liabilities |
15 | |||
Interest expense on convertible notes |
6,876 | |||
|
|
|||
Pro forma net loss |
$ | (17,843 | ) | |
|
|
|||
Denominator |
||||
Weighted-average common shares outstanding, basic and diluted |
5,724,115 | |||
Add pro forma adjustments to reflect: |
||||
Assumed conversion of convertible preferred stock |
16,129,078 | |||
Assumed conversion of convertible notes |
4,371,526 | |||
|
|
|||
Shares used to compute pro forma net loss per share, basic and diluted |
26,224,719 | |||
|
|
|||
Pro forma net loss per share, basic and diluted |
$ | (0.68 | ) | |
|
|
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases, which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The Company early adopted the new standard beginning January 1, 2019 using a modified retrospective approach. ASU 2016-02 provides a number of optional practical expedients and accounting policy elections. The Company elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. As a result of these decisions, financial
F-13
Avidity Biosciences, Inc.
Notes to Financial Statements
information will not be updated, and the disclosures required under this guidance will not be provided for dates and periods prior to January 1, 2019.
The Company currently has one operating lease for office and laboratory spaces in San Diego, California. The operating lease was impacted by the new accounting standard and resulted in the present values of the future lease payments being presented as a right-to-use asset, with a corresponding lease liability at the date of adoption. The financial impact from the adoption of this standard is discussed in Note 7.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new standard requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. ASU 2014-09 defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance. The new standard allows for two methods of adoption: (i) full retrospective adoption, meaning the standard is applied to all periods presented, or (ii) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance. Additionally, in November 2018, the FASB issued ASU No. 2018-18, Clarifying the Interaction between Topic 808 and Topic 606, which clarifies the effect of the revenue standard on the accounting for collaborative arrangements. The update clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, Topic 606 should be applied. The Company adopted the new standards on January 1, 2019 using the modified retrospective method. The adoption of these standards did not have a material impact on the Companys financial position, results of operations or cash flows as the Company did not have any revenue-generating arrangements in effect at January 1, 2019.
In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. ASU 2018-07 specifics that Topic 718 applies to all share-based payment awards, and that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606 Revenue from Contracts with Customers. The Company adopted this standard on January 1, 2019 and its adoption had no impact on the Companys financial statements.
3. Significant Agreements and Contracts
Collaboration and License Agreements and Research Agreement
Research Collaboration and License Agreement with Eli Lilly and Company
In April 2019, the Company entered into a Research Collaboration and License Agreement (the Lilly Agreement) with Eli Lilly and Company (Lilly) for the discovery, development and commercialization of antibody-oligonucleotide conjugate products directed against certain targets in
F-14
Avidity Biosciences, Inc.
Notes to Financial Statements
immunology and other select indications on a worldwide basis. Under the Lilly Agreement, the Company granted Lilly an exclusive, worldwide, royalty-bearing license, with the right to sublicense (subject to certain conditions), under the Companys technology to research, develop, manufacture, and sell products containing antibody-oligonucleotide conjugates that are directed up to six mRNA targets. The Company retains the right to use its technology to perform its obligations under the agreement and for all purposes not granted to Lilly. The Company that it will not, itself or with a third party, research, develop, manufacture or commercialize or otherwise exploit any compound or product directed against targets subject to the agreement.
In consideration of the rights granted to Lilly under the agreement, the Company received a one-time upfront fee of $20.0 million and is eligible to receive up to an aggregate of $405.0 million per target in development, regulatory and commercialization milestone payments. In addition, Lilly is obligated to reimburse the Company for research expenses, as defined, incurred under the agreement. Lilly is obligated to pay the Company a tiered royalty ranging from the mid-single to low-double digits on worldwide annual net sales of licensed products, subject to specified and capped reductions for the market entry of biosimilar products, loss of patent coverage of licensed products and for payments owed to third parties for additional rights necessary to commercialize licensed products in the territory. Lillys royalty obligations and the Lilly Agreement will expire on a licensed product-by-licensed product and country-by-country basis on the later of ten years from the date of the first commercial sale or when there is no longer a valid patent claim covering such licensed product in such country.
The Company has identified multiple promises to deliver goods and services, which include at inception of the agreement: (i) a license to technology and patents, information and know-how; and (ii) collaboration, including research services, technical and regulatory support provided by the Company. At inception and through December 31, 2019, the Company has identified one performance obligation for all the deliverables under the agreement since the delivered elements are either not capable of being distinct or are not distinct within the context of the contract. Accordingly, the Company will recognize revenue for the fixed or determinable collaboration in an amount proportional to the collaboration expenses incurred and the total estimated collaboration expenses over the five-year period over which it expects to deliver its performance obligations. In connection with the Lilly Agreement, the Company recognized revenue of $2.3 million for the year ended December 31, 2019 and had deferred revenue of $18.9 million as of December 31, 2019.
A reconciliation of the closing balance of deferred revenue related to the Lilly Agreement, is as follows (in thousands):
Upfront payment received in 2019 |
$ | 20,000 | ||
Revenue recognized in 2019 |
(1,060 | ) | ||
|
|
|||
Balance at December 31, 2019 |
$ | 18,940 | ||
|
|
Concurrently with the execution of the Lilly Agreement, the Company issued a convertible promissory note to Lilly (see Note 6 for additional discussion). In connection with the Series C financing in November 2019, all outstanding principal and interest accrued under the note converted into 4,576,342 shares of Series C convertible preferred stock.
Other Agreements
In 2016 and 2017, the Company entered into agreements with pharmaceutical companies under which the Company was contracted to perform certain research and development activities, as defined
F-15
Avidity Biosciences, Inc.
Notes to Financial Statements
in work plans. All work under the agreements was completed in early 2018 with the Company recognizing revenue totaling $0.4 million for the year ended December 31, 2018.
4. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31, | ||||||||
2018 | 2019 | |||||||
Laboratory equipment |
$ | 1,493 | $ | 1,755 | ||||
Computers and software |
75 | 65 | ||||||
Office equipment |
37 | 37 | ||||||
Leasehold improvements |
417 | 417 | ||||||
|
|
|
|
|||||
2,022 | 2,274 | |||||||
Less accumulated depreciation |
(1,320 | ) | (1,643 | ) | ||||
|
|
|
|
|||||
Total property and equipment |
$ | 702 | $ | 631 | ||||
|
|
|
|
Depreciation expense related to property and equipment was $0.4 million and $0.3 million for the years ended December 31, 2018 and 2019, respectively.
5. Debt
The Companys debt consisted of the following (in thousands):
December 31, | ||||||||
2018 | 2019 | |||||||
Current liabilities: |
||||||||
Term loans |
$ | 2,800 | $ | 2,800 | ||||
Unamortized debt issuance costs |
(53 | ) | (25 | ) | ||||
Unamortized debt discount |
(1 | ) | (1 | ) | ||||
|
|
|
|
|||||
Loans payable, net of issuance costs and discount |
2,746 | 2,774 | ||||||
Non-current liabilities: |
||||||||
Term loans |
4,200 | 1,400 | ||||||
Accrued end of term fees |
223 | 374 | ||||||
Unamortized debt issuance costs |
(29 | ) | (4 | ) | ||||
|
|
|
|
|||||
Loans payable, net of issuance costs and discount |
4,394 | 1,770 | ||||||
|
|
|
|
|||||
Total loans payable, net of issuance costs and discount |
$ | 7,140 | $ | 4,544 | ||||
|
|
|
|
Term Loan
In June 2017, the Company entered into an amendment (the LSA Amendment) to the Amended and Restated Loan and Security Agreement (as amended, the Loan Agreement) with Silicon Valley Bank (SVB). Pursuant to the LSA Amendment, SVB agreed to make loans of up to $7.0 million, comprising (i) a $5.0 million term loan, funded at the closing date (the Term C Loan), and (ii) subject to the achievement of a specified milestone relating to the Companys research, an additional term loan totaling up to $2.0 million (the Term D Loan), of which $4.1 million was used to repay the Companys existing loan with SVB, in addition to the final payments totaling $0.4 million.
F-16
Avidity Biosciences, Inc.
Notes to Financial Statements
The Term C Loan matures on June 1, 2021 and bears interest at an adjustable annual rate of the prime rate per the Wall Street Journal or successor publication plus one-fifth of one percent (0.20%). The LSA Amendment provided an extension of the interest only period through June 1, 2019, upon the Term D Loan advance. Beginning July 1, 2019, the Company was required to repay the principal amount in 36 equal monthly installments, in addition to the monthly interest payment. In addition, a final payment of 6.5% of the funded amount, or $0.3 million, is due on the maturity date. The final payment fee was accrued as interest expense over the term of the loan and recorded in long-term debt, net of current portion.
In August 2018, the Company entered into a second amendment to the Loan Agreement (the LSA Second Amendment). Pursuant to the LSA Second Amendment, SVB provided the Term D Loan of $2.0 million, upon the Companys receipt of $3.0 million in convertible note financing. In addition, a final payment of 6.5% of the funded amount, or $0.1 million, is due on the maturity date. The Company accounted for the financing prospectively as a debt modification. As of December 31, 2018 and 2019, the interest rate applicable to borrowings under the Term D Loan was 5.7% and 5.0%, respectively.
Amounts borrowed under the Loan Agreement are collateralized by substantially all of the Companys assets, excluding certain intellectual property, which shall remain unencumbered throughout the term of the Loan Agreement. Under the Loan Agreement, the Company is subject to certain customary nonfinancial covenants, events of defaults and material adverse change provisions. At December 31, 2019, the Company was in compliance with all covenants.
In conjunction with the Term A and Term B Loans, the Company issued warrants to SVB to purchase up to 16,474 shares of Series A convertible preferred stock at an exercise price of $2.2615 per share, exercisable at any time following the issuance. The warrants have a term of ten years. In conjunction with the Term C Loan entered into in June 2017, the Company issued warrants to SVB to purchase up to 19,918 shares of common stock at an exercise price of $0.25 per share, exercisable at any time following the issuance. The warrants have a term of seven years. The Company estimated the fair value of the warrants granted using the Black-Scholes option-pricing model and recorded the fair value as debt discounts and are being amortized to interest expense using the effective interest method over the term of the loans.
As of December 31, 2019, future minimum principal and interest payments and the final payment due under the Loan Agreement are as follows (in thousands):
Years Ending December 31, |
Amount | |||
2020 |
$ | 2,947 | ||
2021 |
1,875 | |||
|
|
|||
Total |
4,822 | |||
Less: |
||||
Interest and final payment |
(622 | ) | ||
|
|
|||
Term Loan |
$ | 4,200 | ||
|
|
6. Convertible Notes
In 2018 and 2019, the Company issued convertible promissory notes (collectively, the Notes) in the aggregate principal amount of $3.0 million and $4.5 million, respectively (the 2018 Notes and 2019 Notes, respectively). The 2018 Notes and the 2019 Notes accrued interest at 8% and 10% per annum,
F-17
Avidity Biosciences, Inc.
Notes to Financial Statements
respectively, and automatically converted into preferred equity from the next financing round at 85% and 80%, respectively, of the per share price paid by the investors in a qualified financing of at least $10 million. The 2018 Notes and 2019 Notes provided for optional conversion upon certain other events. Upon change of control, as defined in the agreement, the Company was required to immediately repay 200% of the outstanding principal plus any unpaid accrued interest on the original principal.
Concurrently with the execution of the Lilly Agreement, the Company issued a convertible promissory note to Lilly (the Lilly Note) and received cash proceeds of $15.0 million. The Lilly Note accrued simple interest of 8.0% per annum and, if not converted, would have matured in October 2020. All unpaid principal and interest were due at maturity. In the event of a qualified financing or initial public offering of at least $30 million, unpaid interest and principal were to convert into equity securities at the lesser of (i) 80% of the per share cash price paid by the investors in the qualified financing, or (ii) the quotient resulting from dividing $150 million by the number of the Companys outstanding equity securities immediately prior to the qualified financing. If there had not been a qualified financing, an initial public offering or change of control prior to the maturity date then Lilly could have converted all unpaid interest and principal into the Companys Series B convertible preferred stock at a conversion price equal to $2.8269 per share or if applicable, convert into the class or series of equity securities issued and sold by the Company in an equity financing, other than a qualified financing, with rights senior to the Series B convertible preferred stock at a conversion price equal to the price paid per equity security by the investors participating in such equity financing.
The Notes represent share settled debt that were accounted for at amortized cost by accreting the Notes to their redemption value over the life of the debt using the effective interest method. In connection with the Series C financing in November 2019, all outstanding principal and interest accrued under the Notes converted into 6,893,036 shares of Series C convertible preferred stock. The Company recorded $0.2 million and $6.9 million in interest expense for the year ended December 31, 2018 and 2019, respectively, for the stated interest rate and the discount at which the Notes converted.
7. Commitments and Contingencies
Lease Agreements
The Company adopted ASC 842, Leases, as of January 1, 2019. Prior period amounts have not been adjusted and continue to be reported in accordance with the Companys historic accounting under ASC 840, Leases.
In accordance with ASC 842, the Company determines if an arrangement is a finance lease, operating lease or short-term lease at inception, or as applicable, and accounts for the arrangement under the relevant accounting literature. Currently, the Company is only party to a non-cancelable office space operating lease and short-term lease arrangements. Under the relevant guidance, the Company recognizes operating lease right-of-use (ROU) assets and liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date, using the Companys assumed incremental borrowing rate of 6%, and amortizes the ROU assets and liabilities over the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Companys short-term leases are not subject to recognition of an ROU asset or liability or straight-line lease expense requirements.
In March 2014, the Company entered into a lease agreement for office and laboratory space under a non-cancellable operating lease with a term through November 2017 (the Lease). Under the terms of
F-18
Avidity Biosciences, Inc.
Notes to Financial Statements
the Lease, the Company provided the landlord with a security deposit of $28,000 in the form of an unconditional and irrevocable letter of credit. In July 2017, the Company entered into an amendment to the Lease to extend the Lease through December 2021 (the Lease Amendment). Under the terms of the Lease Amendment, the Company provided the landlord with an additional security deposit of $28,000 in cash and the letter of credit was cancelled. On January 1, 2019, the Company recognized an initial right-of-use asset and lease liability of $0.8 million and $1.1 million, respectively, related to the Lease and the Lease Amendment.
As of December 31, 2019, the Companys ROU assets and liabilities related to the Lease and the First Lease Amendment are as follows (in thousands):
ROU assets (included in other assets) |
$ | 558 | ||
|
|
|||
Current portion of lease liabilities (included in accounts payable and other liabilities) |
$ | 360 | ||
Lease liabilities, long term |
393 | |||
|
|
|||
Total lease liabilities |
$ | 753 | ||
|
|
Supplemental cash flow information, as of December 31, 2019, related to operating leases was as follows (in thousands):
Cash paid included in operating cash flows |
$ | 382 |
Maturities of lease liabilities due under this lease agreement as of December 31, 2019, are as follows (in thousands):
Years Ending December 31, |
Amount | |||
2020 |
$ | 393 | ||
2021 |
405 | |||
|
|
|||
Total lease payments |
798 | |||
Less imputed interest |
(45 | ) | ||
|
|
|||
Total operating lease liabilities |
753 | |||
Less current portion of lease liability |
(360 | ) | ||
|
|
|||
Lease liability, long term |
$ | 393 | ||
|
|
Rent expense under the lease agreement totaled $0.3 million for each of the years ended December 31, 2018 and 2019.
As of December 31, 2019, the weighted-average remaining term of the Companys operating leases was 2.0 years.
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. There are no matters currently outstanding for which any liabilities have been accrued.
F-19
Avidity Biosciences, Inc.
Notes to Financial Statements
Contractual Obligations
As of December 31, 2019, the Company has $6.1 million of outstanding non-cancellable purchase commitments with two contract manufacturing organizations for the manufacture of materials used in its preclinical and planned clinical trials. Approximately $6.0 million of the purchase commitments are expected to be paid within the next twelve months.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breech of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with officers and members of its board of managers and directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2018 and 2019.
8. Stockholders Equity (Deficit)
Conversion
On April 1, 2019, Avidity LLC, a Delaware limited liability company, was converted into Avidity Biosciences, Inc., a Delaware corporation. The entire membership interests of Avidity LLC were converted into securities of Avidity Biosciences, Inc. as follows: (i) each outstanding common unit of Avidity LLC was converted into one share of Avidity Biosciences, Inc.s common stock; (ii) each outstanding Series A preferred unit of Avidity LLC converted into one share of Avidity Biosciences, Inc.s Series A convertible preferred stock; and (iii) each outstanding Series B preferred unit of Avidity Biosciences LLC converted into one share of Avidity Biosciences, Inc.s Series B convertible preferred stock. All the property, rights, privileges, powers and franchises of Avidity LLC vested in Avidity Biosciences, Inc., and all debts, liabilities and duties Avidity LLC became debts, liabilities and duties of Avidity Biosciences, Inc. All references to the former members equity accounts in Avidity LLC have been adjusted to reflect the equivalent number of Avidity Biosciences, Inc. shares of common stock. Upon completion of the conversion, the Company reclassified an accumulated deficit of $44.1 million from predecessor deficit to additional paid in capital.
Convertible Preferred Stock/Units
In November 2019, the Company issued 17,915,525 shares of Series C convertible preferred stock, for cash, at a price of $4.2812 per share, for net proceeds of $72.6 million, net of issuance costs of $4.1 million. In addition, all outstanding principal and accrued interest under the Notes and the Lilly Note were automatically converted into 6,893,036 shares of Series C convertible preferred stock, at a stated discount pursuant to the original terms of the notes at issuance.
F-20
Avidity Biosciences, Inc.
Notes to Financial Statements
As of December 31, 2018, preferred units consisted of the following:
Series |
Units Authorized |
Units Issued and Outstanding |
Per Unit Original Issue Price and Conversion Price |
Liquidation Preference |
Carrying Value |
|||||||||||||||
Series A |
4,366,773 | 4,350,299 | $ | 2.2615 | $ | 9,838 | $ | 9,825 | ||||||||||||
Series B |
8,462,217 | 8,108,471 | $ | 2.8269 | 22,922 | 22,868 | ||||||||||||||
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|
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Total |
12,828,990 | 12,458,770 | $ | 32,760 | $ | 32,693 | ||||||||||||||
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As of December 31, 2019, preferred stock consisted of the following:
Series |
Shares Authorized |
Shares Issued and Outstanding |
Per Share Original Issue Price and Conversion Price |
Liquidation Preference |
Carrying Value |
|||||||||||||||
Series A |
4,366,773 | 4,350,299 | $ | 2.2615 | $ | 9,838 | $ | 9,773 | ||||||||||||
Series B |
8,108,471 | 8,108,471 | $ | 2.8269 | 22,922 | 22,814 | ||||||||||||||
Series C |
25,579,384 | 24,808,561 | $ | 4.2812 | 106,210 | 102,133 | ||||||||||||||
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|
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Total |
38,054,628 | 37,267,331 | $ | 138,970 | $ | 134,720 | ||||||||||||||
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The holders of the preferred stock have the following rights and preferences:
Voting Rights
The holders of preferred stock are entitled to vote, together with the holders of common stock, on all matters submitted to the stockholders for a vote and are entitled to the number of votes equal to the number of whole shares of common stock into which such holders of preferred stock could convert on the record date of for determination of stockholders entitled to vote.
Dividends
The Company cannot declare and pay any common stock dividends without first declaring and paying dividends, as defined in the terms of the amended and restated certificate of incorporation, to the preferred stockholders. The holders of preferred stock are entitled to receive, when, as and if declared by the Board of Directors, noncumulative dividends at the rate of 8.0% of the applicable original issue price of such preferred stock (Original Issue Price), subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the preferred stock. No dividends have been declared as of December 31, 2019.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event (as defined below), each holder of preferred stock is entitled to receive, prior and in preference to any distributions to the common stockholders, an amount equal to the greater of (i) the Original Issue Price per share, plus any declared but unpaid dividends thereon or (ii) the amount such holder would have received if such holder had converted its shares into common stock immediately prior to such liquidation event. In the event that the assets available for distribution to the holders of preferred stock are insufficient to pay such holders the full amounts to which they are
F-21
Avidity Biosciences, Inc.
Notes to Financial Statements
entitled, the assets available for distribution will be distributed on a pro rata basis among the holders of the preferred stock in proportion to the respective amounts that would otherwise be payable in respect of such stock. After payments have been made in full to the holders of preferred stock, then, to the extent available, the remaining amounts would be distributed among the holders of the common stock, pro rata based on the number of shares held by each holder.
Conversion Rights
The shares of 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 preferred stock is automatically converted into common stock, (i) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the preferred stock, or (ii) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock for the account of the Company in which the per share price is at least $4.2816 and the aggregate gross proceeds, net of underwriting discount and commissions, to the Company is at least $40.0 million.
Presentation of Convertible Preferred Stock/Units
The Companys Preferred stock/units have been classified as temporary equity in the accompanying balance sheet in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Companys control, including liquidation, sale or transfer of control of the Company. The Company has determined not to adjust the carrying values of the convertible preferred stock/units to the liquidation preferences of such shares/units because the occurrence of any such change of control event is not probable.
Common Stock
During the years ended December 31, 2018 and 2019, the Company issued 655,072 and 310,140 common units/shares for proceeds of $0.2 million and $0.1 million, respectively, upon early exercise of shares options granted under the 2013 Equity Incentive Plan. The early exercise liability of $0.1 million at each of December 31, 2018 and 2019 was included in accrued liabilities on the accompanying balance sheets.
Equity Incentive Plan
In January 2013, the Company adopted the 2013 Equity Incentive Plan (the Plan). The Plan provided for the issuance of incentive units to employees and nonemployees of the Company and non-statutory unit options, restricted unit awards, unit appreciation rights, and unit bonuses to directors, employees, and consultants of the Company. Under the Plan, 4,486,934 units were initially reserved for issuance. Upon the conversion of the Company to a C corporation, the Plan continued on the same terms and conditions. In 2019, the number of shares reserved under the Plan was increased to 10,065,722 shares. At December 31, 2019, 3,377,646 shares remain available for issuance under the Plan.
The options that are granted from the Plan are exercisable at various dates and will expire no more than ten years from their date of grant. The exercise price of each option shall be determined by the board of directors. For holders of more than 10% of the Companys total combined voting power of all classes of stock, incentive stock options may not be granted at less than 110% of the fair market value of the Companys common stock at the date of grant and for a term not to exceed five years.
F-22
Avidity Biosciences, Inc.
Notes to Financial Statements
Stock Options
Stock option activity for employee and nonemployee awards and related information is as follows :
Number | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term (in years) |
Weighted- Average Grant Date (Fair Value) |
Aggregate Intrinsic Value (in thousands) |
||||||||||||||||
Outstanding and Exercisable at December 31, 2018 |
631,875 | $ | 0.24 | 7.8 | $ | 0.18 | $ | 0 | ||||||||||||
Granted |
3,201,333 | 0.56 | | $ | 1.64 | |||||||||||||||
Exercised |
(312,757 | ) | 0.20 | | | |||||||||||||||
Forfeited |
(4,618 | ) | 0.24 | | | |||||||||||||||
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Outstanding and Exercisable at December 31, 2019 |
3,515,833 | $ | 0.51 | 9.6 | $ | 1.46 | $ | 5,982 | ||||||||||||
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The weighted-average grant date fair value of options granted during the years ended December 2018 and 2019 was $0.14 and $1.64, respectively. The total fair value of options that vested during the year ended December 31, 2018 and 2019 was $0.1 million and $0.4 million, respectively.
As of December 31, 2019, 410,779 of the stock options exercised were unvested and subject to repurchase, 2,815,177 were fully vested, and 53,712 options had been repurchased.
Stock-Based Compensation Expense
The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the stock option/units grants were as follows:
Year Ended December 31, | ||||||||
2018 | 2019 | |||||||
Risk-free interest rate |
2.4% 2.9% | 1.4% 2.7% | ||||||
Expected volatility |
83.0 84.0% | 84.0 88.0% | ||||||
Expected term (in years) |
2.0 6.1 | 2.0 6.1 | ||||||
Expected dividend yield |
% | % |
Risk-Free Interest Rate. The Company bases the risk-free interest rate assumption on the U.S. Treasurys rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.
Expected Volatility. Since the Company is not yet a public company and does not have a trading history for its common stock, the expected volatility assumption is 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 biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Expected Term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.
F-23
Avidity Biosciences, Inc.
Notes to Financial Statements
Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends.
The allocation of stock-based compensation expense was as follows (in thousands):
Year Ended December 31, | ||||||||
2018 | 2019 | |||||||
Research and development expense |
$ | 26 | $ | 84 | ||||
General and administrative expense |
34 | 322 | ||||||
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Total stock-based compensation expense |
$ | 60 | $ | 406 | ||||
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As of December 31, 2019, the unrecognized compensation cost related to outstanding time-based options was $4.8 million, which is expected to be recognized over a weighted-average period of 3.7 years.
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consisted of the following (in thousands):
December 31, | ||||||||
2018 | 2019 | |||||||
Conversion of convertible preferred stock |
12,459 | 37,267 | ||||||
Common stock options/units issued and outstanding |
632 | 3,516 | ||||||
Equity awards available for future issuance |
993 | 3,378 | ||||||
Outstanding preferred and common stock warrants |
36 | 36 | ||||||
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Total |
14,120 | 44,197 | ||||||
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9. Income Taxes
The Company operated as a nontaxable partnership until its conversion on March 31, 2019. The Company had deferred tax assets in existence on March 31, 2019 when the Company became a taxable entity. Deferred tax assets were not recognized due to the uncertainty that such assets will be realized. The Company retained the valuation allowance on the deferred tax assets at December 31, 2019.
For the period April 1, 2019 to December 31, 2019, the Company recorded no provision for income taxes.
F-24
Avidity Biosciences, Inc.
Notes to Financial Statements
A reconciliation of the Companys effective tax rate and federal statutory tax rate is summarized as follows:
Income tax expense (benefit) at statutory rates |
$ | (5,194 | ) | |
State income tax, net of federal benefit |
(1,057 | ) | ||
Permanent items |
14 | |||
Book income (loss) for pre-conversion period |
527 | |||
Interest on convertible notes |
445 | |||
Realized gain on conversion of convertible notes |
958 | |||
Reserve for uncertain tax positions |
140 | |||
Research and development tax credits |
(584 | ) | ||
Deferred tax recognized upon conversion |
(3,076 | ) | ||
Valuation allowance |
7,827 | |||
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|
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Income tax expense (benefit) |
$ | | ||
|
|
As of December 31, 2019, significant components of the Companys deferred income taxes are as follows (in thousands):
Deferred tax assets: |
||||
Net operating loss carryforward |
$ | 4,275 | ||
Research and development tax credits |
438 | |||
Accrued expenses |
179 | |||
Fixed assets |
2,721 | |||
Lease liability |
265 | |||
Stock based compensation |
160 | |||
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Total deferred tax assets |
8,038 | |||
Less valuation allowance |
(7,827 | ) | ||
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Net deferred tax assets |
211 | |||
Deferred tax liabilities: |
||||
Right-of-use asset |
(211 | ) | ||
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Total deferred tax liabilities |
(211 | ) | ||
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Net deferred tax assets |
$ | | ||
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The Company has established a full valuation allowance of $7.8 million against its net deferred tax assets due to the uncertainty surrounding the realization of such assets that preclude it from determining that is more likely than not that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. Managements assessment at December 31, 2019 considered the generation of pre-tax book losses in its first year, the inability to carryback its operating losses, the lack of feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future.
At December 31, 2019, the Company had federal net operating loss (NOL) carryforwards of approximately $15.3 million, before consideration of limitations under Section 382 of the IRC, as further described below. The net loss generated in 2019 may be carried forward indefinitely but federal NOLs
F-25
Avidity Biosciences, Inc.
Notes to Financial Statements
generated in tax years beginning after December 31, 2020 will only be available to offset up to 80% of future taxable income. Additionally, at December 31, 2019, the Company had state NOL carryforwards of approximately $15.0 million which may be used to offset future taxable income and will begin to expire in 2039.
At December 31, 2019, the Company had federal and state tax credit carryforwards of approximately $0.3 million. The Company has not performed a formal research and development credit study with respect to these credits. The federal credits will begin to expire in 2039, if unused, and the state credits carry forward indefinitely.
Pursuant to IRC Section 382 and IRC Section 383, the Companys ability to use NOL and R&D tax credit carryforwards (tax attribute carryforwards) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50 percentage points (by value) within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382. If ownership changes within the meaning of IRC Section 382 have occurred, the amount of pre-change tax attribute carryforwards available to offset future taxable income and income taxes in future years may be significantly restricted. Further, deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC Section 382.
At December 31, 2019, the Company has an unrecognized tax benefit balance of $0.2 million related to federal and state tax credits that, if recognized, would impact the Companys income tax benefit and effective tax rate if the Companys deferred tax assets were not subject to a full valuation allowance. However, due to the existence of the full valuation allowance, future changes in unrecognized tax benefits will not impact the Companys effective tax rate. The Company does not foresee material changes to its liability for uncertain tax benefits within the next 12 months.
The Companys policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense. The Company has no accruals for interest or penalties in the accompanying balance sheets and has not recognized interest or penalties in the accompanying statements of operations.
The Company is subject to taxation in the United States and California. Due to the net operating loss carryforwards, the Companys tax years since inception are subject to examination by these taxing authorities. The Company has not been, nor is it currently, under examination by any taxing authority.
10. Subsequent Events
The Company has evaluated subsequent events occurring between the end of the most recent fiscal year and through April 3, 2020, the date the financial statements were available to be issued. Except as described below, the Company has concluded that no subsequent events have occurred that require disclosure.
Sale of Series C Preferred Stock
In January 2020, the Company sold 537,232 shares of Series C preferred stock and received gross proceeds totaling $2.3 million.
2020 Stock Option Grants
In February 2020, the Company granted options to purchase 1,892,313 shares of common stock to employees and consultants at an exercise price of $0.59 per share.
F-26
Avidity Biosciences, Inc.
Notes to Financial Statements
COVID-19 Outbreak
The continued spread of the COVID-19 pandemic is affecting the United States and global economies and may affect the Companys operations and those of third parties on which the Company relies, including by causing disruptions in the supply of the Companys drug and the conduct of future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the Food and Drug Administration which could result in delays in meetings, reviews and approvals, including with respect to the drug. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Companys ability to access capital, which could negatively impact the Companys short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or future clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Companys liquidity, capital resources, operations and business and those of the third parties on which we rely.
F-27
Shares
Common Stock
PROSPECTUS
Joint Book-running Managers
Cowen | SVB Leerink | |
Credit Suisse | Wells Fargo Securities |
, 2020
Until , 2020, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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 SEC registration fee, the Financial Industry Regulatory Authority, Inc. (FINRA) filing fee and the Nasdaq Global Market listing fee.
Amount paid or to be paid | ||
SEC registration fee |
$ * | |
FINRA filing fee |
* | |
Nasdaq Global Market listing fee |
* | |
Accountants fees and expenses |
* | |
Legal 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 amended and restated certificate of incorporation, which will become effective immediately prior to the closing of this offering, 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 amended and restated 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, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding unregistered securities issued by us since January 1, 2017. Also included is the consideration received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
II-2
(a) | Issuances of Securities |
1. | From December 2016 to October 2017 we issued an aggregate of 8,108,471 Series B preferred units to investors at a purchase price of $2.8269 per unit, for aggregate consideration of approximately $21.3 million, including the conversion of previously outstanding convertible promissory notes at a discounted price of $2.2615 per unit. Each outstanding Series B preferred unit was converted into one share of our Series B convertible preferred stock in connection with the Conversion described below. |
2. | In June 2017, we issued to a lender a warrant to purchase 19,918 common units at an exercise price of $0.25 per unit in connection with our entry into a loan and security agreement. The warrant was converted into a warrant to purchase 19,918 shares of our common stock at an exercise price of $0.25 per share in connection with the Conversion described below. |
3. | In July 2018, we issued and sold to certain investors an aggregate principal amount of $3.0 million in convertible promissory notes (the 2018 Notes). The 2018 Notes, including accrued interest thereon, were automatically converted into shares of our Series C convertible preferred stock in November 2019 in connection with our Series C convertible preferred stock financing. |
4. | In February 2019, we issued and sold to certain investors an aggregate principal amount of $4.5 million in convertible promissory notes (the 2019 Notes). The 2019 Notes, including accrued interest thereon, were automatically converted into shares of our Series C convertible preferred stock in November 2019 in connection with our Series C convertible preferred stock financing. |
5. | In April 2019, Avidity Biosciences, LLC (formerly known as Avidity NanoMedicines LLC) (Avidity LLC), a Delaware limited liability company, converted into Avidity Biosciences, Inc. (the Conversion). As a result, all 6,159,933 common units, 4,350,299 Series A preferred units and 8,108,471 Series B preferred units of Avidity LLC outstanding at the time of the Conversion were converted into 6,159,933 shares of common stock, 4,350,299 shares of Series A convertible preferred stock and 8,108,471 shares of Series B convertible preferred stock, respectively, of Avidity Biosciences, Inc. The Conversion was effected in accordance with the terms of the Agreement and Plan of Conversion and did not constitute a sale for purposes of the Securities Act. |
6. | In April 2019, we entered into a convertible note purchase agreement with an investor, pursuant to which we issued and sold a convertible promissory note in the principal amount of $15.0 million (the April 2019 Note). The April 2019 Note, including accrued interest thereon, was automatically converted into shares of our Series C convertible preferred stock in November 2019 in connection with our Series C convertible preferred stock financing. |
7. | In November 2019 and January 2020 we issued an aggregate of 25,345,793 shares of our Series C convertible preferred stock to investors at a purchase price of $4.2812 per unit, for aggregate consideration of approximately $102.8 million, including the conversion of the 2018 Notes, the 2019 Notes and the April 2019 Note at a discounted purchase price of $3.639, $3.425 and $3.425, respectively. |
No underwriters were involved in the foregoing issuances 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(a)(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 holders of securities described above represented to us in connection with their purchase or issuance that they were accredited investors and were acquiring the securities 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
II-3
bear the risks of the investment and could hold the securities for an indefinite period of time. The holders 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 of Stock Options |
1. | From January 2017 through December 31, 2019, we granted stock options to purchase an aggregate of 4,515,633 shares of our common stock at a weighted-average exercise price of $0.45 per share, to certain of our employees, consultants and directors in connection with services provided to us by such persons. 1,132,456 of these options have been exercised and 129,845 have been cancelled through December 31, 2019. |
The stock options and common stock issuable upon 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(a)(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.
Item 16. Exhibits and Financial Statement Schedules.
(c) | Exhibits. See Exhibit Index attached to this registration statement, which is incorporated by reference herein. |
(d) | 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.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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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. |
II-5
EXHIBIT INDEX
Exhibit |
Description of Exhibit | |
1.1* | Form of Underwriting Agreement | |
3.1 | Amended and Restated Certificate of Incorporation (currently in effect) | |
3.2 | 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 | Amended and Restated Registration Rights Agreement, dated November 8, 2019, by and among the Registrant and certain of its stockholders | |
4.3 | Participation Rights Letter Agreement, dated November 8, 2019, by and among RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited | |
4.4 | Warrant issued to Silicon Valley Bank, dated August 7, 2015 | |
4.5 | Warrant issued to Silicon Valley Bank, dated June 9, 2017 | |
5.1* | Opinion of Latham & Watkins LLP | |
10.1# | Avidity Biosciences, Inc. 2013 Amended and Restated Equity Incentive Plan, including form of stock option grant notice and stock option agreement thereunder | |
10.2#* | Avidity Biosciences, Inc. 2020 Incentive Award Plan, including form of stock option grant notice and stock option agreement thereunder | |
10.3#* | Avidity Biosciences, Inc. 2020 Employee Stock Purchase Plan | |
10.4#* | Non-Employee Director Compensation Policy | |
10.5#* | Employment Letter Agreement, dated September 19, 2019, by and between Sarah Boyce and the Registrant | |
10.6* | Employment Letter Agreement, dated January 17, 2020, by and between Joseph Baroldi and the Registrant | |
10.7#* | Executive Employment Agreement, dated October 2, 2013, by and between Arthur A. Levin, Ph.D. and the Registrant | |
10.8#* | Chairman Agreement, dated October 28, 2019, by and between Troy Wilson, Ph.D., J.D. and the Registrant | |
10.9# | Release Agreement dated December 19, 2019, by and between P. Kent Hawryluk and the Registrant | |
10.10#* | Form of Indemnification Agreement for Directors and Officers | |
10.11 | Research Collaboration and License Agreement, dated April 17, 2019, by and between Eli Lilly and Company and the Registrant | |
10.12 | Loan and Security Agreement, dated August 7, 2015, as amended, by and between Silicon Valley Bank and the Registrant | |
10.13 | Lease Agreement, dated March 31, 2014, as amended, by and between ARE-10933 North Torrey Pines, LLC and Registrant |
Exhibit |
Description of Exhibit | |
23.1* | Consent of BDO USA, 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. |
# | Indicates management contract or compensatory plan. |
| Portions of this exhibit have been omitted for confidentiality purposes. |
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 , 2020.
AVIDITY BIOSCIENCES, INC. | ||
By: |
| |
Sarah Boyce | ||
President, Chief Executive Officer and Director |
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of Avidity Biosciences, Inc., hereby severally constitute and appoint Sarah Boyce and John W. Wallen III, Ph.D., J.D., 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 and in his 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 | ||
Sarah Boyce |
President, Chief Executive Officer and Director (principal executive officer) | , 2020 | ||
Joseph Baroldi |
Chief Operating Officer (principal financial and accounting officer) |
, 2020 | ||
Troy Wilson, Ph.D., J.D. |
Chairman of the Board of Directors | , 2020 | ||
Todd Brady |
Director | , 2020 | ||
Noreen Henig, M.D. |
Director | , 2020 |
Signature |
Title |
Date | ||
Edward Kaye, M.D. |
Director | , 2020 | ||
Michael Martin, Ph.D. |
Director | , 2020 | ||
Roderick Wong, M.D. |
Director | , 2020 |
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AVIDITY BIOSCIENCES, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
AVIDITY BIOSCIENCES, INC., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the General Corporation Law),
DOES HEREBY CERTIFY:
1. That the name of this corporation is Avidity Biosciences, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on April 1, 2019 under the name Avidity Biosciences, Inc.
2. That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:
FIRST: The name of this corporation is Avidity Biosciences, Inc. (the Corporation).
SECOND: The address of the registered office of the Corporation in the State of Delaware is 3500 S. DuPont Highway, City of Dover, County of Kent, DE 19901. The name of its registered agent at such address is GKL Registered Agents of DE, Inc.
THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 52,042,016 shares of Common Stock, $0.0001 par value per share (Common Stock) and (ii) 38,054,628 shares of Preferred Stock, $0.0001 par value per share (Preferred Stock).
1.
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.
2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the Corporation is subject to Section 2115 of the California Corporations Code. During such time or times that the Corporation is subject to Section 2115(b) of the California Corporations Code, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder desires. No stockholder, however, shall be entitled to so cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting, and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote together as a single class, and without a separate class vote by holders of Common Stock, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B. PREFERRED STOCK
4,366,773 shares of the authorized Preferred Stock of the Corporation are hereby designated Series A Preferred Stock, 8,108,471 shares of the authorized Preferred Stock of the Corporation are hereby designated Series B Preferred Stock, and 25,579,384 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated Series C Preferred Stock, each with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to sections or subsections in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.
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1. Dividends.
Dividends at the rate per annum of eight percent (8%) of the applicable Original Issue Price shall be payable on the Preferred Stock, on a pari passu basis, when, as and if declared by the Board of Directors of the Corporation (the Board or Board of Directors) (subject to appropriate adjustment in the event of any dividend, split, combination or other similar recapitalization with respect to the applicable Preferred Stock) (the Preferred Dividends). Preferred Dividends shall not accrue and shall not be cumulative. The Corporation shall not declare, pay or set aside any dividends on any other shares of the Corporation unless (in addition to the obtaining of any consents required elsewhere herein) the holders of Preferred Stock then outstanding shall first receive, or simultaneously receive, together on a pari passu basis, a dividend on each outstanding Preferred Stock in an amount at least equal to the sum of (i) the amount of any declared but unpaid Preferred Dividends on the applicable series of Preferred Stock and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Preferred Stock as would equal the product of (1) the dividend payable on each share of Preferred Stock of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of such series of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any dividend, split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the applicable Original Issue Price; provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on more than one class or series of shares, the dividend payable to the holders of each series of Preferred Stock pursuant to this section shall be calculated based upon the dividend on the class or series of stock that would result in the highest dividend on each series of Preferred Stock. The Original Issue Price means (a) $2.2615 per share of Series A Preferred Stock, (b) $2.8269 per share of Series B Preferred Stock and (c) $4.2812 per share of Series C Preferred Stock, as applicable, in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1 Preferential Payments to Holders of Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Preferred Stock, on a pari passu basis, then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the applicable Original Issue Price plus any dividends declared but unpaid thereon, and (ii) such amount per share as would have been payable had all shares of the applicable series of Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event. If upon any such liquidation, dissolution or winding up of the
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Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled under this Section 2.1, the holders of shares of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The aggregate amount which a holder of Preferred Stock is entitled to receive under this section is hereinafter referred to as the Liquidation Preference.
2.2 Payments to Holders of Common Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment in full of the Liquidation Preference required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.
2.3 Deemed Liquidation Events.
2.3.1 Definition. Each of the following events shall be considered a Deemed Liquidation Event unless the holders of 52.5% of the outstanding shares of Preferred Stock voting together as a single class and on an as-converted to Common Stock basis (the Supermajority Holders) elect otherwise by written notice sent to the Corporation at least 15 days prior to the effective date of any such event:
(a) any consolidation or merger of the Corporation with or into any other corporation or other entity or person, or any other reorganization, other than any such consolidation, merger or reorganization in which the shares of capital stock of the Corporation immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization, provided that, for the purpose of this section, all shares of Common Stock issuable upon exercise of Options (as defined below) outstanding immediately prior to such consolidation or merger or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged; or any transaction or series of related transactions to which the Corporation is a party in which in excess of fifty percent (50%) of the Corporations voting power is transferred; provided that any such Deemed Liquidation Event shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Corporation or any successor or indebtedness of the Corporation is cancelled or converted or a combination thereof; or
(b) a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Corporation.
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2.3.2 Effecting a Deemed Liquidation Event.
(a) The Corporation shall not have the power to effect a Deemed Liquidation Event unless the agreement or plan of merger or consolidation for such transaction (the Merger Agreement) provides that the consideration payable to the stockholders of the Corporation in such Deemed Liquidation Event shall be paid to the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2.
(b) In the event of a Deemed Liquidation Event described in Section 2.3.1(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within 90 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the 90th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of Preferred Stock, and (iii) if the Supermajority Holders so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the Available Proceeds), on the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a price per share equal to the applicable Liquidation Preference. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall redeem a pro rata portion of each holders shares of Preferred Stock to the fullest extent of such Available Proceeds, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the Available Proceeds were sufficient to redeem all such shares, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. Prior to the distribution or redemption provided for in this Section 2.3.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.
2.3.3 Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon a Deemed Liquidation Event shall be the cash or the value of the property, rights or securities to be paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors.
2.3.4 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Section 2.3.1, if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the Additional Consideration), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration) shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in
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connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Section 2.3.4, consideration placed into escrow or retained as a holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.
3. Voting.
3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of a meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of this Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class and on an as-converted to Common Stock basis.
3.2 Election of Directors. The holders of record of the shares of Preferred Stock, exclusively and as a separate class, shall be entitled to elect three directors of the Corporation (the Series Preferred Directors). The holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect one director of the Corporation. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of the Corporation. Any director elected as provided in the preceding sentences may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Preferred Stock or Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first and second sentences of this Section 3.2, as applicable, then any directorship not so filled shall remain vacant until such time as the holders of the Preferred Stock or Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. Notwithstanding the provisions of Section 223(a)(1) and 223(a)(2) of the Delaware General Corporation Law, any newly created directorships resulting from any increase in the authorized number of directors or amendment of this Certificate of Incorporation may be filled by a majority of the directors then in office, though less than a quorum, or by a sole director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced; provided, however, that where such newly created directorship is in relation to the directors elected by the holders of a class or series of stock, the holders of shares of such class or
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series may override the Boards action to fill such newly created directorship as provided for herein. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Section 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Section 3.2. The rights of the holders of the Preferred Stock and the rights of the holders of the Common Stock under the first sentence of this Section 3.2 shall terminate on the first date following the Original Issue Date (as defined below) on which there are issued and outstanding less than 1,000,000 of shares of Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Preferred Stock).
3.3 Preferred Stock Protective Provisions. At any time when at least 1,000,000 shares of Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock) are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock voting together as a single class and on an as-converted to Common Stock Basis (the Requisite Holders) with respect to subsections 3.3(d), (i), (j), and (l), or the Supermajority Holders with respect to subsections 3.3(a) through (c), (e) through (h), and (k), in each case given in writing or by vote at a meeting, consenting or voting (as the case may be):
(a) alters or changes the rights, preferences or privileges of thePreferred Stock;
(b) increases or decreases the authorized or issued number of Preferred Stock or Common Stock;
(c) creates (by reclassification or otherwise) any new class or series of equity interest having rights, preferences or privileges senior to or on a parity with the Preferred Stock;
(d) amends or waives any provision of this Certificate of Incorporation or of the Corporations bylaws, provided that any such amendment or waiver that is adverse to either of the Series A, Series B, or Series C Preferred Stock shall require the consent of such affected series, voting separately as a class;
(e) increase or decrease the number of directors on the Board;
(f) results in the redemption of any Common Stock, other than Common Stock granted pursuant to equity compensation arrangements approved by the Board;
(g) results in any liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event;
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(h) results in the payment or declaration of any dividends or other distributions on any Common Stock;
(i) results in the formation of any joint venture or subsidiary that is not wholly owned by the Corporation;
(j) enter into or be a party to any transaction with any director, officer, or employee of the Corporation or any associate (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934) of any such person, except for transactions relating to changes in the compensation of the Corporations executive officers or the approval of any option grants, stock awards and other equity-related matters, or transactions made in the ordinary course of business and pursuant to reasonable requirements of the Corporations business and upon fair and reasonable terms, in each case as approved by a majority of the Board of Directors;
(k) create any new stock option plan or increase the number of shares of Common Stock reserved for issuance under the Corporations 2013 Equity Incentive Plan; or
(l) create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including but not limited to obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness for borrowed money, other than equipment leases, bank lines of credit or trade payables incurred in the ordinary course.
4. Optional Conversion.
The holders of Preferred Stock shall have conversion rights as follows (the Conversion Rights):
4.1 Right to Convert.
4.1.1 Conversion Ratio. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the applicable Original Issue Price by the Applicable Conversion Price (as defined below) in effect at the time of conversion.
4.1.2 Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.
4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors.
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Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
4.3 Mechanics of Conversion.
4.3.1 Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporations transfer agent at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holders shares of Preferred Stock and, if applicable, any event on which such conversion is contingent and (b) if such holders shares are certificated, surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holders name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the Conversion Time), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Section 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.
4.3.2 Reservation of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate
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of Incorporation. Before taking any action which would cause an adjustment reducing the Applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Applicable Conversion Price.
4.3.3 Effect of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Section 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the Applicable Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4 Adjustments to Applicable Conversion Price for Diluting Issues.
4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply:
(a) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(b) Original Issue Date shall mean the date on which the first share of Series C Preferred Stock was issued.
(c) Convertible Securities shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
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(d) Additional Shares of Common Stock shall mean all shares of Common Stock issued (or, pursuant to Section 4.4.3 below, deemed to be issued) by the Corporation after the Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, Exempted Securities):
(i) shares of Common Stock, Convertible Securities or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board, including at least two of the Series Preferred Directors;
(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section 4.5, 4.6, 4.7 or 4.8;
(iii) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case, provided such issuance is pursuant to the terms of such Option or Convertible Security as approved by the Board, including at least two of the Series Preferred Directors;
(iv) shares of Common Stock, Options or Convertible Securities issued with the approval of the Board, pursuant to the bona fide acquisition of another business by the Corporation by merger, purchase of substantially all of the assets or other reorganization;
(v) shares of Common Stock, Options or Convertible Securities issued to an individual natural person, partnership (whether general or limited), corporation, limited liability company, unincorporated organization, trust, joint venture, governmental agency, or other entity, whether domestic or foreign and whether in its own or any representative capacity, in each case with which the Corporation has business relationships, which issuances are approved by the Board, including at least two of the Series Preferred Directors, and are primarily for non-equity financing purposes; or
(vi) shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, pursuant to a debt financing or equipment leasing transaction, which issuances are approved by the Board, including at least two of the Series Preferred Directors, and primarily for non-equity financing purposes.
(e) Applicable Conversion Price shall mean, in the case of the Series A Preferred Stock, a per share amount initially equal to $2.2615, in the case of the Series B Preferred Stock, a per share amount initially equal to $2.8269, and in the case of the Series C Preferred Stock, a per share amount initially equal to $4.2812, in each case subject to adjustment as provided in this Section 4.
4.4.2 No Adjustment of Applicable Conversion Price. No adjustment in the Applicable Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the Requisite Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
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4.4.3 Deemed Issue of Additional Shares of Common Stock.
(a) If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Applicable Conversion Price pursuant to the terms of Section 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Applicable Conversion Price as would have been obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of (i) the Applicable Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Applicable Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Applicable Conversion Price pursuant to the terms of Section 4.4.4 (either because the consideration per share (determined pursuant to Section 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible
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Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section 4.4.3(a)) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Applicable Conversion Price pursuant to the terms of Section 4.4.4, the Applicable Conversion Price shall be readjusted to such Applicable Conversion Price as would have been obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Applicable Conversion Price provided for in this Section 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Section 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Applicable Conversion Price that would result under the terms of this Section 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Applicable Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4 Adjustment of Applicable Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3), without consideration or for a consideration per share less than the Applicable Conversion Price in effect immediately prior to such issuance or deemed issuance, then the Applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP2 = CP1* (A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
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(a) CP2 shall mean the Applicable Conversion Price in effect immediately after such issuance of Additional Shares of Common Stock;
(b) CP1 shall mean the Applicable Conversion Price in effect immediately prior to such issuance of Additional Shares of Common Stock;
(c) A shall mean the number of shares of Common Stock outstanding immediately prior to such issuance of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
(d) B shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and
(e) C shall mean the number of such Additional Shares of Common Stock issued in such transaction.
4.4.5 Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issuance or deemed issuance of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and
(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing:
(i) The total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating
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thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
4.4.6 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Applicable Conversion Price pursuant to the terms of Section 4.4.4 then, upon the final such issuance, the Applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Applicable Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Applicable Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
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(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Applicable Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
4.8 Adjustment for Merger or Reorganization, etc. Subject to the provisions of Section 2.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Sections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock.
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4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 10 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Preferred Stock.
4.10 Notice of Record Date. In the event:
(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent at least 10 days prior to the record date or effective date for the event specified in such notice.
5. Mandatory Conversion.
5.1 Trigger Events. Upon either (a) the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $40,000,000 of gross proceeds to the Corporation prior to underwriting commissions and expenses,
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at a price per share of at least $4.2816 (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock), and in connection with such offering the Common Stock is listed for trading on the Nasdaq Stock Markets National Market, the New York Stock Exchange or another national securities exchange or marketplace approved by the Board (a Qualified IPO), or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the Supermajority Holders (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the Mandatory Conversion Time), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated pursuant to Section 4.1.1 and (ii) such shares may not be reissued by the Corporation.
5.2 Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Section 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Section 5.2. As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Section 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.
6. Redemption. Other than as set forth in Section 2.3.2(b), the Preferred Stock is not redeemable.
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7. Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.
8. Waiver. Any of the rights, powers, preferences and other terms of each series of Preferred Stock set forth herein may be waived on behalf of all holders of such series of Preferred Stock by the affirmative written consent or vote of the holders of at least a majority of the shares of such series of Preferred Stock then outstanding.
9. Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH: Subject to any additional vote required by this Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
SIXTH: Subject to any additional vote required by this Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.
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TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.
Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not (a) adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification or (b) increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification.
ELEVENTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An Excluded Opportunity is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee, affiliate or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, the persons referred to in clauses (i) and (ii) are Covered Persons), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director of the Corporation. Any repeal or modification of this Article Eleventh will only be prospective and will not affect the rights under this Article Eleventh in effect at the time of the occurrence of any actions or omissions to act giving rise to liability. Notwithstanding anything to the contrary contained elsewhere in this Certificate of Incorporation, the affirmative vote of the Requisite Holders will be required to amend or repeal, or to adopt any provisions inconsistent with this Article Eleventh.
TWELFTH: For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of shares of Common Stock permitted under this Certificate of Incorporation from employees, officers, directors or consultants of the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board of Directors (in addition to any other consent required under this Certificate of Incorporation), such repurchase may be made without regard to any preferential dividends arrears amount or preferential rights amount (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any preferential dividends arrears amount or preferential rights amount (as those terms are defined therein) shall be deemed to be zero.
THIRTEENTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the
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Corporation, its directors, officers or employees arising pursuant to any provision of the General Corporation Law or the Corporations Certificate of Incorporation or Bylaws or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of clauses (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Thirteenth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article Thirteenth (including, without limitation, each portion of any sentence of this Article Thirteenth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
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3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.
4. That this Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporations Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this Corporation on this 7th day of November, 2019.
By: | /s/ Sarah Boyce | |
Sarah Boyce, Chief Executive Officer |
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Exhibit 3.2
BYLAWS
OF
AVIDITY BIOSCIENCES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Delaware is 3500 S. DuPont Highway, City of Dover, County of Kent County, Kent County or in such other location as the Board of Directors of the corporation (the Board of Directors) may from time to time determine or the business of the corporation may require.
Section 2. Other Offices. The corporation will also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and 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
CORPORATE SEAL
Section 3. Corporate Seal. The Board of Directors may adopt a corporate seal. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting will not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (the DGCL).
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, will be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporations notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section.
(b) At an annual meeting of the stockholders, only such business will be conducted as has been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of this Section, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the DGCL and applicable law, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this paragraph), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to
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holders of at least the percentage of the corporations voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporations voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section. To be timely, a stockholders notice will be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding years annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. In no event will the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholders notice as described above. Such stockholders notice will set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the 1934 Act), and Rule 14a-4(d) thereunder (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporations books, and of such beneficial owner, (ii) the class and number of shares of the corporation that are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporations voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporations voting shares to elect such nominee or nominees (an affirmative statement of such intent, a Solicitation Notice).
(c) Notwithstanding anything in the second sentence of paragraph (b) of this Section to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 100 days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this Section will also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section (or elected or appointed pursuant to Article IV of these Bylaws) will be eligible to serve as directors and only such business will be conducted at a meeting of stockholders as has been brought before the meeting in accordance with the procedures set forth in this Section. Except as
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otherwise provided by law, the Chairman of the meeting will have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination will not be presented for stockholder action at the meeting and will be disregarded.
(e) Notwithstanding the foregoing provisions of this Section, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws is deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section, public announcement means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission (the SEC) pursuant to Section 13, 14 or 15(d) of the 1934 Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by directors representing a quorum of the directors then serving on the Board of Directors or (iv) by the holders of shares entitled to cast not less than 20% of the votes at the meeting, and will be held at such place, on such date, and at such time as the Board of Directors will fix. At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (the CGCL), stockholders holding 5% or more of the outstanding shares will have the right to call a special meeting of stockholders as set forth in Section 18(b) of these Bylaws.
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request will be in writing, specifying the general nature of the business proposed to be transacted, and will be delivered personally or sent by certified or registered mail, return receipt requested, or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors will determine the time and place of such special meeting, which will be held not less than 35 nor more than 120 days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request will cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this paragraph (b) is to be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders will be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice
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thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his or her attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting will be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote will constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business will be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter will be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors will be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, will constitute a quorum entitled to take action with respect to that vote on that matter. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting will be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting pursuant to the Certificate of Incorporation, these Bylaws or applicable law. If the adjournment is for more than 30 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, will be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents will have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy will be voted after three years from its date of creation unless the proxy provides for a longer period.
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Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship where it is so provided, their acts with respect to voting (including giving consent pursuant to Section 13) will have the following effect: (a) if only one votes, his or her act binds all; (b) if more than one votes and the vote is not evenly split, the act of the majority so voting binds all; (c) if more than one votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) will be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary will prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list will be open to the examination of any stockholder, for any purpose germane to the meeting, on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list will be open to examination of any stockholder during the time of the meeting as provided by law.
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action that may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, will be signed by the holders 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.
(b) Every written consent or electronic transmission will bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission will be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered to the corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office will be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent will be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228(c) of the DGCL. If the action to which the stockholders consented is such as would have required the
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filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section must state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.
(d) An electronic mail, facsimile or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, will be deemed to be written, signed and dated for the purposes of this Section, provided that any such electronic mail, facsimile or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the electronic mail, facsimile or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic mail, facsimile or electronic transmission. The date on which such electronic mail, facsimile or electronic transmission is transmitted will be deemed to be the date on which such consent was signed. No consent given by electronic mail, facsimile or other electronic transmission will be deemed to have been delivered until such consent is reproduced in paper form and until such paper form is delivered to the corporation by delivery to its registered office in the state of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporations registered office will be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by electronic mail, facsimile or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the Board of Directors. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction is a complete reproduction of the entire original writing.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer, or, if the Chief Executive Officer is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, will act as chairman. The Secretary, or, in his or her absence, an Assistant Secretary directed to do so by the Chief Executive Officer, will act as secretary of the meeting.
(b) The Board of Directors is entitled to make such rules or regulations for the conduct of meetings of stockholders as it deems necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting has the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman permits, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters that are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting will be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders will not be required to be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office. The authorized number of directors of the corporation will be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors have not been elected at an annual meeting, they may be elected as soon thereafter as convenient.
Section 16. Powers. The business and affairs of the corporation will be managed by or under the direction of the Board of Directors, except as otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Term of Directors.
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors will be elected at each annual meeting of stockholders to serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors will shorten the term of any incumbent director.
(b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, will be entitled to so cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
Section 18. Vacancies.
(a) Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors will, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships will be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director; provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series will, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships must be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Any director elected in accordance with the preceding sentence will hold office for the remainder of the full
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term of the director for which the vacancy was created or occurred and until such directors successor has been elected and qualified. A vacancy in the Board of Directors will be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
(b) At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders constitute less than a majority of the directors then in office, then
(i) any holder or holders of an aggregate of 5% or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or
(ii) the Superior Court of the proper county will, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director will terminate upon that election of a successor.
Section 19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it will be deemed effective at the pleasure of the Board of Directors. When one or more directors resigns from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, will have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations become effective, and each director so chosen will hold office for the unexpired portion of the term of the director whose place is vacated and until his or her successor has been duly elected and qualified.
Section 20. Removal.
(a) Subject to any limitations imposed by applicable law, the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors or (ii) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the corporation, entitled to elect such director.
(b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board of Directors is removed, no individual director may be removed when the votes cast against such directors removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election in which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most recent election were then being elected.
Section 21. Meetings
(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware that has been designated by the Board of Directors and publicized
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among all directors, either orally or in writing, including a voice-messaging system or other system designated to record and communicate messages, facsimile, or by electronic mail or other electronic means. No further notice will be required for a regular meeting of the Board of Directors.
(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the Chief Executive Officer (if a director), the President (if a director) or any director.
(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means constitutes presence in person at such meeting.
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors will be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least 24 hours before the date and time of the meeting. If notice is sent by US mail, it will be sent by first class mail, postage prepaid at least three days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, will be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice signs a written waiver of notice or waives notice by electronic transmission. All such waivers will be filed with the corporate records or made a part of the minutes of the meeting.
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors will consist of a majority of the total number of directors then serving; provided, however, that such number will never be less than 1/3 of the total number of directors authorized except that when one director is authorized, then one director will constitute a quorum. At any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. If the Certificate of Incorporation provides that one or more directors will have more or less than one vote per director on any matter, every reference in this Section to a majority or other proportion of the directors will refer to a majority or other proportion of the votes of the directors.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business will be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
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Section 23. 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 in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing will be in paper form if the minutes are maintained in paper form and will be in electronic form if the minutes are maintained in electronic form.
Section 24. Fees and Compensation. Directors will be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained is to be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors, will have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee will have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors will consist of one or more members of the Board of Directors and will have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event will any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of paragraphs (a) or (b) of this Section may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member will terminate on the date of his or her death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. 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, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he 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.
(d) Meetings. Unless the Board of Directors otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section will be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place that has been determined from time to time by such committee, and may be called by any director who is a member of
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such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee will constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present will be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer (if a director), or if the Chief Executive Officer is not a director or is absent, the President (if a director), or if the President is not a director or is absent, the most senior Vice President (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, will preside over the meeting. The Secretary, or in his or her absence, any Assistant Secretary directed to do so by the Chief Executive Officer or President, will act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation will include, if and when designated by the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom will be elected or appointed from time to time by the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it deems necessary. The Board of Directors may assign such additional titles to one or more of the officers as it deems appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation will be fixed by or in the manner designated by the Board of Directors.
Section 28. Tenure and Duties of Officers.
(a) General. All officers will hold office at the pleasure of the Board of Directors and until their successors have been duly elected or appointed and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors, or by the Chief Executive Officer or other officer if so authorized by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, will preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors will perform other duties commonly incident to the office and will also perform such other duties and have such other powers as the Board of Directors designates from time to time. If there is no Chief Executive Officer and no President, then the Chairman of the Board of Directors will also serve as the Chief Executive Officer of the corporation and will have the powers and duties prescribed in paragraph (c) of this Section.
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(c) Duties of Chief Executive Officer. The Chief Executive Officer will preside at all meetings of the stockholders and (if a director) at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The Chief Executive Officer will be the chief executive officer of the corporation and will, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The Chief Executive Officer will perform other duties commonly incident to the office and will also perform such other duties and have such other powers as the Board of Directors designates from time to time.
(d) Duties of President. In the absence or disability of the Chief Executive Officer or if the office of Chief Executive Officer is vacant, the President will preside at all meetings of the stockholders and (if a director) at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. If the office of Chief Executive Officer is vacant, the President will be the chief executive officer of the corporation (including for purposes of any reference to Chief Executive Officer in these Bylaws) and will, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President will perform other duties commonly incident to the office and will also perform such other duties and have such other powers as the Board of Directors designates from time to time.
(e) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents will perform other duties commonly incident to their office and will also perform such other duties and have such other powers as the Board of Directors or the President designates from time to time.
(f) Duties of Secretary. The Secretary will attend all meetings of the stockholders and of the Board of Directors and will record all acts and proceedings thereof in the minute book of the corporation. The Secretary will give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary will perform all other duties provided for in these Bylaws and other duties commonly incident to the office and will also perform such other duties and have such other powers as the Board of Directors will designate from time to time. The Chief Executive Officer may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary will perform other duties commonly incident to the office and will also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer designates from time to time.
(g) Duties of Chief Financial Officer. The Chief Financial Officer will keep or cause to be kept the books of account of the corporation in a thorough and proper manner and will render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer. The Chief Financial Officer, subject to the order of the Board of Directors, will have the custody of all funds and securities of the corporation. The Chief Financial Officer will perform other duties commonly incident to his or her office and will also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer designate from time to time. The Chief Executive Officer may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller will perform other duties commonly incident to the office and will also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer designates from time to time.
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Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the Chief Executive Officer or to the President or to the Secretary. Any such resignation will be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation will become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation will not be necessary to make it effective. Any resignation will be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written or electronic consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name, or to enter into contracts on behalf of the corporation, except as otherwise provided by law or these Bylaws, and such execution or signature will be binding upon the corporation. All checks and drafts drawn on banks or other depositaries of funds to the credit of the corporation or on special accounts of the corporation will be signed by such person or persons as the Board of Directors authorizes so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee will have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, will be voted, and all proxies with respect thereto will be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. The shares of the corporation will be represented by certificates, or will be uncertificated. Certificates for the shares of stock, if any, of the corporation will be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of shares of stock in the corporation represented by certificate will be entitled to have a certificate signed by or in the name of the corporation by any two authorized officers of the corporation, including but not limited to the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
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number of shares owned by him or her in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue.
Section 35. Lost Certificates. A new certificate or certificates will 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. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owners legal representative, to agree to indemnify the corporation in such manner as it requires or to give the corporation a surety bond in such form and amount 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 36. Restrictions on Transfer.
(a) No holder of any of the shares of stock of the corporation may sell, transfer, assign, pledge, or otherwise dispose of or encumber any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise (each, a Transfer) without the prior written consent of the corporation, upon duly authorized action of its Board of Directors. The corporation may withhold consent for any legitimate corporate purpose, as determined by the Board of Directors. Examples of the basis for the corporation to withhold its consent include, without limitation, (i) if such Transfer to individuals, companies or any other form of entity identified by the corporation as a potential competitor or considered by the corporation to be unfriendly; or (ii) if such Transfer increases the risk of the corporation having a class of security held of record by 2,000 or more persons, or 500 or more persons who are not accredited investors (as such term is defined by the SEC), as described in Section 12(g) of the 1934 Act and any related regulations, or otherwise requiring the corporation to register any class of securities under the 1934 Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the corporation in connection with the initial issuance of such shares or the issuance of any other securities; or (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, internet site, or similar method of communication, including without limitation any trading portal or internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer represents a Transfer of less than all of the shares then held by the stockholder and its affiliates or is to be made to more than a single transferee.
(b) If a stockholder desires to Transfer any shares, then the stockholder will first give written notice to the corporation. The notice must name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. Any shares proposed to be transferred to which Transfer the corporation has consented pursuant to paragraph (a) of this Section will first be subject to the corporations right of first refusal located in Section 37 of these Bylaws.
(c) At the option of the corporation, the stockholder will be obligated to pay to the corporation a reasonable transfer fee related to the costs and time of the corporation and its legal and other advisors related to any proposed Transfer.
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(d) Any Transfer, or purported Transfer, of shares not made in strict compliance with this Section will be null and void, will not be recorded on the books of the corporation and will not be recognized by the corporation. Transfers of record of shares of stock of the corporation will be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(e) The restriction on Transfer set forth in Section 36(a) will not apply to the Transfer of shares of Preferred Stock or to the Transfer of any shares of Common Stock issued upon the conversion of any shares of Preferred Stock.
(f) The restriction on Transfer set forth in Section 36(a) will terminate upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act of 1933, as amended (the 1933 Act).
(g) The certificates representing shares of Common Stock of the corporation will bear on their face the following legend so long as the foregoing Transfer restrictions are in effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A TRANSFER RESTRICTION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
Section 37. Right of First Refusal. No stockholder will Transfer any of the shares of stock of the corporation, except by a Transfer that meets the requirements set forth in this Section 37, in addition to any other restrictions or requirements set forth under applicable law or these Bylaws:
(a) If the stockholder desires to Transfer any of his or her shares of stock, then the stockholder must first give written notice thereof to the corporation. The notice must name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer.
(b) For 30 days following receipt of such notice, the corporation has the option to purchase up to all the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation has the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other Transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section, the price will be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it will give written notice to the transferring stockholder of its election and settlement for said shares will be made as provided below in paragraph (d) of this Section.
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholders notice, the Secretary of the corporation will so notify the transferring stockholder and settlement thereof will be made in cash within 30 days after the Secretary of the corporation receives said transferring stockholders notice; provided that if the terms of payment set forth in said transferring stockholders notice were other than cash against delivery, the corporation and/or its assignee(s) will pay for said shares on the same terms and conditions set forth in said transferring stockholders notice.
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(e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholders notice, said transferring stockholder may, subject to the corporations approval and all other restrictions on Transfer located in Section 36 of these Bylaws, within the 60-day period following the expiration or waiver of the option rights granted to the corporation and/or its assignees(s) herein, Transfer the shares specified in said transferring stockholders notice that were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholders notice. All shares so sold by said transferring stockholder will continue to be subject to the provisions of this Bylaw in the same manner as before said Transfer.
(f) Anything to the contrary contained herein notwithstanding, the following transactions are exempt from the right of first refusal in paragraph (a) of this Section:
(1) A stockholders Transfer of any or all shares held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family or to any limited partnership or limited liability company of which the stockholder, members of such stockholders immediate family or any trust for the account of such stockholder or such stockholders immediate family will be the general or limited partner(s) of such partnership or the controlling member(s) of such limited liability company. Immediate family as used herein means spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such Transfer;
(2) A stockholders bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent Transfer of said shares by said institution will be conducted in the manner set forth in this Bylaw;
(3) A stockholders Transfer of any or all of such stockholders shares to the corporation or to any other stockholder of the corporation;
(4) A stockholders Transfer of any or all of such stockholders shares to a person who, at the time of such Transfer, is an officer or director of the corporation;
(5) A corporate stockholders Transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder;
(6) A stockholders Transfer of shares of Preferred Stock of the corporation (or any shares of Common Stock issued upon conversion thereof);
(7) A corporate stockholders Transfer of any or all of its shares to any or all of its stockholders; or
(8) A Transfer by a stockholder that is a limited or general partnership to any or all of its partners or former partners in accordance with partnership interests.
In any such case, the transferee, assignee, or other recipient will receive and hold such stock subject to the provisions of this Section and any other restrictions set forth in these Bylaws, and there will be no further Transfer of such stock except in accord with this Section and the other provisions of these Bylaws.
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(g) The provisions of this Bylaw may be waived with respect to any Transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This Bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation.
(h) Any Transfer, or purported Transfer, of securities of the corporation will be null and void unless the terms, conditions, and provisions of this Bylaw are strictly observed and followed.
(i) The foregoing right of first refusal will terminate upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act of 1933, as amended.
(j) The certificates representing shares of Common Stock of the corporation that are subject to the right of first refusal in paragraph (a) of this Section will bear on their face the following legend so long as the foregoing right of first refusal remains in effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
(k) To the extent this Section conflicts with any written agreements between the corporation and the stockholder attempting to Transfer shares, such agreement will control.
Section 38. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will, subject to applicable law, not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders will be at the close of business on the day immediately preceding the day on which notice is given, or if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders will apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) 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 record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date will not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent will, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors will promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required
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by applicable law, will be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporations registered office will be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting will be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date will not precede the date upon which the resolution fixing the record date is adopted, and which record date will be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose will be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 39. Registered Stockholders. The corporation is entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and is not bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it has express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 40. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34 of these Bylaws), may be signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security is authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security is issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, will be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who has signed or attested any bond, debenture or other corporate security, or whose facsimile signature appears thereon or on any such interest coupon, has ceased to be such officer before the bond, debenture or other corporate security so signed or attested has been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature has been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
Section 41. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 42. Dividend Reserve. 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 Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors thinks conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 43. Fiscal Year. The fiscal year of the corporation will be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 44. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.
(a) Directors and Executive Officers. The corporation will indemnify its directors and executive officers (for the purposes of this Article, executive officers has the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation will not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under paragraph (d) of this Section.
(b) Other Officers, Employees and Other Agents. The corporation will have power to indemnify its other officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors will have the power to delegate the determination of whether indemnification will be given to any such person except executive officers to such officers or other persons as the Board of Directors determines.
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(c) Expenses. The corporation will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or executive officer of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding, provided, however, that, if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) will be made only upon delivery to the corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it is ultimately determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section, no advance will be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation, in which event this paragraph will not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Section will be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Section to a director or executive officer will be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within 90 days of request therefor. The claimant in such enforcement action, if successful in whole or in part, will be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation will be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation will be entitled to raise as a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his or her conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, will be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
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(e) Non-Exclusivity of Rights. The rights conferred on any person by this Section are not exclusive of any other right that such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, 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 office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Section will continue as to a person who has ceased to be a director or executive officer and will inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the DGCL, or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section.
(h) Amendments. Any repeal or modification of this Section is only prospective and does not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Section or any portion hereof is invalidated on any ground by any court of competent jurisdiction, then the corporation will nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that has not been invalidated, or by any other applicable law. If this Section is invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation will indemnify each director and executive officer to the full extent under applicable law.
(j) Certain Definitions. For the purposes of this Section, the following definitions apply:
(1) The term proceeding is to be broadly construed and includes, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term expenses is to be broadly construed and includes, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the corporation includes, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger that, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, stands in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a director, executive officer, officer, employee, or agent of the corporation include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
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(5) References to other enterprises include employee benefit plans; references to fines 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 include any service as a director, officer, employee or agent of the corporation that imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan is deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this Section.
ARTICLE XII
NOTICES
Section 45. Notices.
(a) Notice to Stockholders. Written notice to stockholders of stockholder meetings will be given as provided in Section 7 of these Bylaws. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.
(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in paragraph (a) of this Section, or as provided for in Section 21 of these Bylaws. If such notice is not delivered personally, it will be sent to such address as such director has filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, will in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Methods of Notice. It is not necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person is not required and there is no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting that is taken or held without notice to any such person with whom communication is unlawful has the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate will state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
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(f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws will be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent is deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent is revocable by the stockholder by written notice to the corporation.
ARTICLE XIII
AMENDMENTS
Section 46. Amendments. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the corporation. The stockholders also have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, such action by stockholders requires the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.
ARTICLE XIV
LOANS TO OFFICERS
Section 47. Loans to Officers. Except as otherwise prohibited under applicable law, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors approves, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws is deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
ARTICLE XV
MISCELLANEOUS
Section 48. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Section, the Board of Directors will cause an annual report to be sent to each stockholder of the corporation not later than 120 days after the close of the corporations fiscal year. Such report will include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporations shares, as determined by Section 605 of the CGCL, additional information as required
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by Section 1501(b) of the CGCL will also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, the 1934 Act will take precedence. Such report will be sent to stockholders at least 15 days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record of the corporations shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived.
Section 49. Forum. Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporations stockholders; (iii) any action asserting a claim against the corporation or any director or officer or other employee of the corporation arising pursuant to any provision of the DGCL, the certificate of incorporation or the Bylaws of the corporation; or (iv) any action asserting a claim against the corporation or any director or officer or other employee of the corporation governed by the internal affairs doctrine.
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AVIDITY BIOSCIENCES, INC.
CERTIFICATE OF SECRETARY
I hereby certify that:
I am the duly elected and acting Secretary of Avidity Biosciences, Inc., a Delaware corporation (the Company); and
Attached hereto is a complete and accurate copy of the Bylaws of the Company as duly adopted by the Board of Directors of the Company by Unanimous Written Consent dated April 1, 2019 and said Bylaws are presently in effect.
This Certificate of Secretary may be executed via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and will be deemed to have been duly and validly delivered and be valid and effective for all purposes. Signed on April 1, 2019.
/s/ Kent Hawryluk |
Kent Hawryluk |
Secretary |
Exhibit 4.2
Execution Version
AVIDITY BIOSCIENCES, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the Agreement) is entered into as of November 8, 2019, by and among AVIDITY BIOSCIENCES, INC., a Delaware corporation (the Company) and the investors listed on Exhibit A hereto, referred to hereinafter as the Investors and each individually as an Investor.
RECITALS
WHEREAS, certain of the Investors (the Existing Investors) hold the Companys Series A Preferred Stock, Series B Preferred Stock and/or Common Stock issued upon conversion thereof and possess registration rights, information rights and other rights pursuant to an Amended and Restated Registration Rights Agreement dated as of April 1, 2019 between the Company and such Investors (the Prior Agreement); and
WHEREAS, the Existing Investors desire to amend and restate the Prior Agreement in its entirety and to accept the rights created pursuant to this Agreement in lieu of the rights granted to them under the Prior Agreement; and
WHEREAS, certain of the Investors are purchasing the Companys Series C Preferred Stock (the Financing) pursuant to that certain Series C Preferred Stock Purchase Agreement of even date herewith by and among the Company and certain of the Investors (the Purchase Agreement), under which certain of the Companys and such Investors obligations are conditioned upon the execution and delivery of this Agreement by such Investors, Existing Investors and the Company;
NOW, THEREFORE, the Existing Investors hereby agree that the Prior Agreement shall be amended and restated, and the parties to this Agreement further agree as follows:
SECTION 1. GENERAL.
1.1 Definitions. As used in this Agreement the following terms shall have the following respective meanings:
(a) Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital or other investment fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company or investment adviser with, such Person.
(b) Board or Board of Directors means the Companys board of directors.
(c) Bylaws means the Companys Bylaws, dated as of the date hereof, as amended from time to time.
(d) Certificate of Incorporation means the Companys Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.
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(e) Competitor means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), in the engineering and research of oligonucleotides conjugated to antibodies, antibody fragments or protein binding agents, but shall not include Takeda Ventures, Inc., RTW or any financial investment firm or collective investment vehicle that, together with its Affiliates, holds less than twenty percent (20)% of the outstanding equity of any Competitor and does not, nor do any of its Affiliates, have a right to designate any members of the Board of Directors or Managers of any Competitor.
(f) Derivative Securities means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock or Registrable Securities, including options and warrants.
(g) Exchange Act means the Securities Exchange Act of 1934, as amended.
(h) FOIA Party means a Person that, in the determination of the Board of Directors, may be subject to, and thereby required to disclose non-public information furnished by or relating to the Company under, the Freedom of Information Act, 5 U.S.C. 552 (FOIA), any state public records access law, any state or other jurisdictions laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement.
(i) Form S-3 means such form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
(j) Holder means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.8 hereof.
(k) IPO means the Companys first underwritten public offering of its Common Stock or Registrable Securities under the Securities Act.
(l) New Securities means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.
(m) Person means any individual, corporation, partnership, trust, limited liability company, association or other entity.
(n) Preferred Stock means the Companys Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock.
(o) Register, registered, and registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.
(p) Registrable Securities means the shares of Stock, including the shares of Common Stock issuable upon conversion of the Preferred Stock. Notwithstanding the foregoing, Registrable Securities shall not include any securities (i) sold by a person to the public either pursuant to a registration statement or Rule 144 or (ii) sold in a private transaction in which the transferors rights under Section 2 of this Agreement are not assigned.
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(q) Registrable Securities then outstanding shall be the number of equity securities of the Company issued in exchange for the shares of Preferred Stock that are Registrable Securities and either (i) are then issued and outstanding or (ii) are issuable pursuant to then exercisable or convertible securities.
(r) Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 2.1, 2.2 and 2.3 hereof, exclusive of Selling Expenses, but including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed thirty thousand dollars ($30,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).
(s) RTW means RTW Investments, LP and its Affiliated funds, including RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited.
(t) SEC or Commission means the Securities and Exchange Commission.
(u) Securities Act shall mean the Securities Act of 1933, as amended.
(v) Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale.
(w) Series A Preferred Stock means the Companys Series A Preferred Stock.
(x) Series B Preferred Stock means the Companys Series B Preferred Stock.
(y) Series C Preferred Stock means the Companys Series C Preferred Stock.
(z) Special Registration Statement shall mean (i) a registration statement relating to any employee benefit plan or (ii) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statements related to the issuance or resale of securities issued in such a transaction or (iii) a registration related to stock issued upon conversion of debt securities.
(aa) Stock shall mean the Companys Preferred Stock and Common Stock held from time to time by the Investors listed on Exhibit A hereto and their permitted assigns.
(bb) Voting Agreement shall mean that certain Amended and Restated Voting Agreement of even date herewith by and among the Company and certain of the Investors.
SECTION 2. REGISTRATION.
2.1 Demand Registration.
(a) Subject to the conditions of this Section 2.1, if the Company shall receive a written request from the Holders of at least thirty percent (30%) of the Registrable Securities (the Initiating Holders) that the Company file a registration statement under the Securities Act with an anticipated aggregate offering price to the public of at least $10,000,000, then the Company shall, within
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thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.1, make best efforts to effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that all Holders request to be registered.
(b) 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 2.1 or any request pursuant to Section 2.3 and the Company shall include such information in the written notice referred to in Section 2.1(a) or Section 2.3(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities held by all Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.1 or Section 2.3, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders); provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration pursuant to this Section 2.1:
(i) prior to the date three (3) years following the Initial Closing (as defined in the Purchase Agreement);
(ii) prior to the expiration of the restrictions on transfer set forth in Section 2.10 following the IPO;
(iii) after the Company has effected two (2) registrations pursuant to this Section 2.1, and such registrations have been declared or ordered effective;
(iv) 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 the IPO; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective;
(v) if the Company notifies the Initiating Holders within thirty (30) days after receipt of the request for the filing of a registration statement pursuant to this Section 2.1 of its intent to file a registration statement for a public offering of its Common Stock within ninety (90) days after receipt of such request;
(vi) if the Company shall furnish to Initiating Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Company that it would be seriously
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detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period;
(vii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.3 below; or
(viii) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
2.2 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding Special Registration Statements) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If the registration statement of which the Company gives notice under this Section 2.2 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to include Registrable Securities in a registration pursuant to this Section 2.2 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement, if the Company determines in good faith, based on consultation with the underwriter, that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; and second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; provided, however, that unless the registration is for the IPO, no such reduction shall reduce the amount of securities of the selling Holders included in the registration below 30% of the total amount of securities included in such registration. In no event will shares of any other selling stockholder be included in such registration that would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than a majority of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and stockholders of such Holder, or the estates and family members
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of any such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing person shall be deemed to be a single Holder, and any pro rata reduction with respect to such Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such Holder, as defined in this sentence.
(b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 whether or not any Holder has elected to include securities in such registration, and shall promptly notify any Holder that has elected to include shares in such registration of such termination or withdrawal. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.4 hereof.
2.3 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.3:
(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 $1,000,000;
(iii) if within thirty (30) days of receipt of a written request from any Holder or Holders pursuant to this Section 2.3, the Company gives notice to such Holder or Holders of the Companys intention to make a public offering within one hundred and twenty (120) days, other than pursuant to a Special Registration Statement;
(iv) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.3; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period;
(v) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.3; or
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(vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the requests of the Holders. Registrations effected pursuant to this Section 2.3 shall not be counted as demands for registration or registrations effected pursuant to Section 2.1.
2.4 Expenses of Registration. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.1, 2.2 or 2.3 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.1 or 2.3, the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware at the time of such request or (b) the Holders of a majority of Registrable Securities agree to deem such registration to have been effected as of the date of such withdrawal for purposes of determining whether the Company shall be obligated pursuant to Section 2.1(c) or 2.3(b)(v), as applicable, to undertake any subsequent registration, in which event such right shall be forfeited by all Holders. If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then such registration shall not be deemed to have been effected for purposes of determining whether the Company shall be obligated pursuant to Section 2.1(c) or 2.3(b)(5), as applicable, to undertake any subsequent registration.
2.5 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to thirty (30) days or, if earlier, until the Holder or Holders have completed the distribution related thereto; provided, however, that at any time, upon written notice to the participating Holders and for a period not to exceed ninety (90) days thereafter (the Suspension Period), the Company may delay the filing or effectiveness of any registration statement or suspend the use or effectiveness of any registration statement (and the Initiating 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 there is or may be in existence material nonpublic information or events involving the Company, the failure of which to be disclosed in the prospectus included in the registration statement could result in a Violation (as defined below). In the event that the Company shall exercise its right to delay or suspend the filing or effectiveness of a registration 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 sixty (60) days with the consent of the holders of a majority of the Registrable Securities registered under the applicable registration statement, which consent shall not be unreasonably withheld. In no event shall any Suspension Period, when taken together with all prior Suspension Periods, exceed 120 days in the aggregate. If so directed by the Company, all Holders registering securities under such registration
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statement shall (i) not offer to sell any Registrable Securities pursuant to the registration statement during the period in which the delay or suspension is in effect after receiving notice of such delay or suspension; and (ii) 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. Notwithstanding the foregoing, the Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement other than a registration statement on Form S-3 that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement 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 the thirty (30) day period set forth in subsection (a) above.
(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the 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.
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will, as promptly as reasonably possible under the circumstances taking into account the Companys good faith assessment of any adverse consequence to the Company of the premature disclosure of an event, amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
(g) Use its reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of 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 (ii) a letter, dated as of 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.
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2.6 Delay of Registration; Furnishing Information.
(a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.1, 2.2 or 2.3 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities.
(c) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.1 or Section 2.3 if the number of securities or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Companys obligation to initiate such registration as specified in Section 2.1 or Section 2.3, whichever is applicable.
2.7 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.1, 2.2 or 2.3:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a Violation) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement or incorporated reference therein, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the 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 (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement (excluding the use by a Holder of an outdated or defective prospectus after notice is delivered by the company that the prospectus is outdated or defective); and the Company will reimburse each such Holder, partner, member, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of (i) or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, member, officer, director, underwriter or controlling person of such Holder or (ii) a breach of this Agreement by such Holder.
(b) 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 qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and
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any other Holder selling securities under such registration statement or any of such other Holders partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any of the following statements: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement or incorporated reference therein, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the 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 (iii) any violation or alleged violation by the Company of the Securities Act (collectively, a Holder Violation), in each case to the extent (and only to the extent) that such Holder Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Holder Violation; provided, however, that the indemnity agreement contained in this Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.8 exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses thereof to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7 to the extent, and only to the extent, prejudicial to its ability to defend such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.7.
(d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability 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 Violation(s) or Holder Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to
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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; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section 2.7 shall survive completion of any offering of Registrable Securities in a registration statement and, with respect to liability arising from an offering to which this Section 2.7 would apply that is covered by a registration filed before termination of this Agreement, such termination. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which 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.
2.8 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities (for so long as such shares remain Registrable Securities) that is (a) a partner, retired partner or affiliated fund of the Holder if the Holder is a partnership, (b) any member or former member of the Holder if the Holder is a limited liability company, (c) any family member or trust for the benefit of the Holder if the Holder is an individual, (d) another Holder that, following such transfer or assignment, holds at least 1,000,000 shares of Registrable Securities or (e) is an Affiliate of a Holder; provided, however, in each case the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement.
2.9 Limitation on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included; provided that this limitation shall not apply to any transferee who becomes a party to this Agreement in accordance with Section 2.8.
2.10 Market Stand-Off Agreement. Each Holder hereby agrees that such Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock (or other securities) held by such Holder (other than those included in the registration) during the 180-day period following the effective date of the IPO (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto); provided, that, the foregoing provisions of this Subsection 2.10 shall not apply to the sale of any shares purchased by a Holder in connection with the IPO or after the date of the IPO, and shall only apply if all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities are bound by and have entered into similar agreements. In the event that any of the parties bound by this Section 2.10 are released from their obligations under this Section 2.10, all other parties bound by this Section 2.10 shall be similarly released.
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2.11 Agreement to Furnish Information. If requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.11 shall not apply to a Special Registration Statement. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to such shares of Common Stock (or other securities) until the end of such period. Each Holder agrees that any transferee of any shares of Registrable Securities shall be bound by this Section 2.11. The underwriters of the Companys securities are intended third party beneficiaries of this Sections 2.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
2.12 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company filed with the Commission; and such other reports and documents as a Holder may reasonably request in connection with availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.
2.13 Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 2.1, Section 2.2, or Section 2.3 hereof shall terminate upon the date that is three (3) years following the IPO. Upon such termination, such securities shall cease to be Registrable Securities hereunder for all purposes.
2.14 Basic Financial Information and Inspection Rights.
(a) Within 180 days following the end of each fiscal year of the Company, the Company will furnish each Holder who holds at least (i) 1,000,000 shares of Registrable Securities based on shares of Series A Preferred Stock and/or Series B Preferred Stock, or (ii) 3,503,363 shares of Registrable Securities based on shares of Series C Preferred Stock, in each case, or their equivalent in other equity securities that have been issued in exchange for Preferred Stock as applicable, in each case subject to appropriate adjustment for any stock splits, stock dividends, combinations, recapitalizations and the like (a Major Investor), a balance sheet of the Company, as at the end of such fiscal year, and a statement of income and a statement of cash flows of the Company for such year, all audited and prepared in accordance with generally accepted accounting principles consistently applied (except as noted therein or as disclosed to the recipients thereof) and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail;
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(b) Within 90 days following the end of each quarterly accounting period in each fiscal year, the Company will furnish each Major Investor a balance sheet of the Company as of the end of each such quarterly period, and a statement of income of the Company for such period, prepared in accordance with generally accepted accounting principles consistently applied (except as noted therein or as disclosed to the recipients thereof), compared against the applicable quarterly portion of the annual operating plan, and with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. Such financial statements may be unaudited;
(c) Within 30 days prior to the beginning of each fiscal year of the Company, the Company will furnish to each Major Investor a copy of the Companys annual budget and operating plan for such fiscal year, as approved by the Board;
(d) Each Major Investor shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested;
(e) Notwithstanding the foregoing, the Company shall not be obligated under this Section 2.14 (i) with respect to a Competitor of the Company; (ii) to provide access to any information (A) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel, (B) to any Person that a majority of the disinterested members of the Companys Board of Directors determine, in good faith, has a direct conflict of interest with respect to the information so requested, or (C) the disclosure of which is restricted by contractual arrangements with third parties or applicable legal requirements; and
(f) All rights and obligations provided in this Section 2.14 shall terminate upon the earlier of: (i) the completion of the IPO or (ii) a Liquidation Event (as defined in the Certificate of Incorporation).
2.15 Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including any information provided by the Company pursuant to Section 2.14 and notice of the Companys intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this subsection by such Investor), (b) is or has been independently developed or conceived by such Investor without use of the Companys confidential information, or (c) is or has been made known or disclosed to such Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iii) as may otherwise be required by law, regulation, rule, court order or subpoena, provided that such Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
SECTION 3. RIGHTS TO FUTURE STOCK ISSUANCES.
3.1 Right of First Offer. Subject to the terms and conditions of this Subsection 3.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company
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shall first offer such New Securities to each Major Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having beneficial ownership, as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Major Investor (Investor Beneficial Owners); provided that each such Affiliate or Investor Beneficial Owner (x) is not a Competitor or FOIA Party, unless such partys purchase of New Securities is otherwise consented to by the Board of Directors, (y) agrees to enter into this Agreement, the Voting Agreement and the Amended and Restated Right of First Refusal and Co-Sale Agreement of even date herewith among the Company, the Investors and the other parties named therein, as an Investor under each such agreement (provided that any Competitor or FOIA Party shall not be entitled to any rights as a Major Investor under Subsections 2.14 and 3.1 hereof), and (z) agrees to purchase at least such number of New Securities as are allocable hereunder to the Major Investor holding the fewest number of Series C Preferred Stock and any other Derivative Securities.
(a) The Company shall give notice (the Offer Notice) to each Major Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.
(b) By notification to the Company within twenty (20) days after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Major Investor (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Major Investor) bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities). At the expiration of such twenty (20) day period, the Company shall promptly notify each Major Investor that elects to purchase or acquire all the shares available to it (each, a Fully Exercising Investor) of any other Major Investors failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors were entitled to subscribe but that were not subscribed for by the Major Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Subsection 3.1(b) shall occur within the later of ninety (90) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Subsection 3.1(c).
(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection 3.1(b), the Company may, during the ninety (90) day period following the expiration of the periods provided in Subsection 3.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Subsection 3.1.
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(d) The right of first offer in this Subsection 3.1 shall not be applicable to (i) Exempted Securities (as defined in the Certificate of Incorporation); (ii) shares of Registrable Securities issued in the IPO; and (iii) the issuance of additional Series C Preferred Stock pursuant to Subsection 2.3 of the Purchase Agreement.
3.2 Termination. The covenants set forth in Subsection 3.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Certificate of Incorporation, whichever event occurs first.
SECTION 4. INVESTOR COVENANTS
4.1 Commerce Department Compliance. The Company may be required to file reports with the Bureau of Economic Analysis (the BEA) of the US Commerce Department when a US affiliate of a foreign Investor if such foreign Investor, together with its affiliates, directly or indirectly controls ten percent (10%) or more of the voting securities of the Company. Such foreign Investor that is a foreign individual or entity or a US subsidiary or affiliate of a foreign parent covenants to provide information necessary for the Company to comply with BEA filings required under the International Investment and Trade in Services Act.
SECTION 5. ADDITIONAL COVENANTS.
5.1 Employee Agreements. Unless otherwise approved by the Board of Directors, the Company will cause each officer of the Company and person now or hereafter employed or engaged as a consultant/independent contracts by it or by any subsidiary to enter into a proprietary rights assignment agreement and a one-year non-solicitation agreement, each substantially in the form approved by the Board of Directors. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, the above-referenced agreement or any restricted Stock agreement between the Company and any employee, without the consent of the Board of Directors.
5.2 Employee Stock. Unless otherwise approved by the Board of Directors, including the Series C Director (as defined in the Voting Agreement), as applicable, all future new employees and consultants of the Company who receive stock options or awards of the Companys capital stock or other equity incentive awards after the date hereof shall be required to execute option, restricted stock or other award agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months. In addition, unless otherwise approved by the Board of Directors, the Company shall retain a right of first refusal on employee transfers until the Companys IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted Stock.
5.3 Insurance. The Company shall obtain, within ninety (90) days of the date hereof, from financially sound and reputable insurers Directors and Officers liability insurance, in an amount of at least $3,000,000 and on terms and conditions satisfactory to the Board of Directors, and will use commercially reasonable efforts to cause such insurance policy to be maintained until such time as the Board of Directors determines that such insurance should be discontinued. Notwithstanding any other provision of this Section 5.3 to the contrary, for so long as any of the Preferred Directors (as defined in the Certificate of Incorporation) are serving on the Board of Directors, the Company shall not cease to maintain a Directors and Officers liability insurance policy in an amount of at least $3,000,000 unless approved by the Preferred Directors.
15.
5.4 Indemnification Matters. For so long as any Preferred Directors are serving on the Board of Directors, the Company shall not amend or repeal the provisions relating to director indemnification set forth in Article XI of the Companys Bylaws, and Article Tenth of the Certificate of Incorporation, without the consent of the Board including at least a majority of the Preferred Directors then serving on the Board.
5.5 Board Matters. The Company shall reimburse the nonemployee directors and observers for all reasonable out-of-pocket travel expenses incurred (including airfare, and otherwise consistent with the Companys travel policy) in connection with attending meetings of the Board of Directors. The Series C Director shall be entitled in such persons discretion to be a member of any committee of the Board of Directors.
SECTION 6. MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware, without reference to conflicts of laws or principles thereof.
6.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors, assigns, heirs, executors, and administrators and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price.
6.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement.
6.4 Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
6.5 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be amended or modified, and the obligations of the Company and the rights of the Holders under this Agreement may be waived, only upon the written consent of the Company and the holders of at least a majority of the then-outstanding Registrable Securities. For the avoidance of doubt, prior to the conversion of Preferred Stock into Registrable Securities this Agreement may be amended or modified, and the obligations of the Company and the rights of the Holders under this Agreement may be waived, only upon the written consent of the Company and the Investors holding at least a majority of the then-outstanding Preferred Stock, voting together on an as-converted basis. Notwithstanding the foregoing, this Agreement may not be amended, modified or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment,
16.
modification, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 3 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction), provided that notwithstanding any waiver of any of the provisions of Section 3 with respect to a particular offering of New Securities, in the event any Major Investor actually purchases any such New Securities in such offering, then each other Major Investor shall be permitted to participate in such offering on a pro rata basis (based on the pro rata level of participation of the Major Investor purchasing the largest portion of such Major Investors pro rata share).
(b) For the purposes of determining the number of Holders or Investors entitled to vote or exercise any rights hereunder, the Company shall be entitled to rely solely on the list of record holders of its stock as maintained by or on behalf of the Company.
6.6 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any partys part of any breach, default or noncompliance under the Agreement or any waiver on such partys part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.
6.7 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address or electronic mail address as such party may designate by ten (10) days advance written notice to the other parties hereto.
6.8 Attorneys Fees. In the event that any suit or action is instituted under or in relation to this Agreement, including without limitation to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
6.9 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
6.10 Additional Investors. Any holder of shares of Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an Investor, a Holder and a party hereunder.
6.11 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Counterparts may also be delivered via facsimile, electronic mail (including, PDF or any electronic signature
17.
complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
6.12 Aggregation of Stock. All Registrable Securities held or acquired by affiliated entities or persons or persons or entities under common management or control shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
6.13 Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require.
6.14 Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of the State of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
6.15 WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
6.16 Termination. This Agreement shall terminate and be of no further force or effect upon the termination of all registration rights as described in Section 2.13 hereof.
[SIGNATURE PAGES FOLLOW]
18.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: | ||
AVIDITY BIOSCIENCES, INC. | ||
By: | /s/ Sarah Boyce | |
Name: | Sarah Boyce | |
Title: | Chief Executive Officer | |
Address: | 10975 N. Torrey Pines Rd. | |
Suite 150 | ||
La Jolla, CA 92037 |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
ALETHEA BIOTECH FUND, L.P. | ||
By: | /s/ Tony Hsu | |
Name: | Tony Hsu | |
Title: | Founder /Managing Member | |
ALETHEA FULCRUM FUND, LP | ||
By: | /s/ Tony Hsu | |
Name: | Tony Hsu | |
Title: | Founder /Managing Member |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
ALEXANDRIA VENTURE INVESTMENTS, LLC a Delaware limited liability company | ||
By: ALEXANDRIA VENTURE INVESTMENTS, LLC a Maryland corporation, managing. member | ||
By: | /s/ Aaron Jacobson | |
Name: | Aaron Jacobson | |
Title: | SVP Venture Counsel |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
TAKEDA VENTURES, INC. | ||
By: | /s/ Michael Martin | |
Name: | Michael Martin | |
Title: | President |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
TROY E. WILSON AND LEMOURE ELIASSON, CO-TRUSTEES OF THE RED FISH BLUE FISH TRUST, DATED DECEMBER 31, 2012 (AS AMENDED) | ||
By: | /s/ Troy Wilson | |
Name: | Troy Wilson | |
Title: | Co-Trustee |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
P. KENT HAWRYLUK REVOCABLE TRUST | ||
By: | /s/ P. Kent Hawryluk | |
Name: | P. Kent Hawryluk | |
Title: | Trustee |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
CURE DUCHENNE VENTURES, LLC | ||
By: | /s/ Debra Miller | |
Name: | Debra Miller | |
Title: | CEO |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
ST. PHARM CO., LTD. | ||
By: | /s/ Hyun Min Lee | |
Name: | Hyun Min Lee | |
Title: | CFO |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR |
/s/ Bjorn E. Koch |
BJORN E KOCH |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
ELI LILLY AND COMPANY | ||
By: | /s/ Philip L. Johnson | |
Name: | Philip L. Johnson | |
Title: | Senior Vice President and Treasurer |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
RTW MASTER FUND, LTD. | ||
By: | /s/ Roderick Wong, M.D. | |
Name: | Roderick Wong, M.D. | |
Title: | Director |
RTW INNOVATION MASTER FUND, LTD. | ||
By: | /s/ Roderick Wong, M.D. | |
Name: | Roderick Wong, M.D. | |
Title: | Director |
RTW VENTURE FUND LIMITED | ||
By: | RTW Investments, LP, its Investment Manger | |
By: | /s/ Roderick Wong, M.D. | |
Name: | Roderick Wong, M.D. | |
Title: | Managing Partner |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
MILLENNIUM TRUST CO., LLC CUSTODIAN FBO PETER K. HAWRYLUK ROTH IRA A/C XXXX4XK75 | ||
By: | /s/ P. Kent Hawryluk | |
Name: | P. Kent Hawryluk | |
Title: | Trustee |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
MILLENNIUM TRUST CO., LLC CUSTODIAN FBO JAMES H STEBBINS ROTH IRA A/C XXXX15385 | ||
By: | /s/ James Stebbins | |
Name: | James Stebbins | |
Title: | CEO |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
BRACE PHARMACEUTICALS LLC | ||
By: | /s/ Vinzenz Ploerer | |
Name: | Vinzenz Ploerer | |
Title: | CEO &President |
AVIDITY BIOSCIENCES, INC.
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
CORMORANT PRIVATE HEALTHCARE FUND II, LP | ||
By: | /s/ Bihua Chen | |
Name: | Bihua Chen | |
Title: | Managing Member of the GP | |
CORMORANT GLOBAL HEALTHCARE MASTER FUND, LP | ||
By: | /s/ Bihua Chen | |
Name: | Bihua Chen | |
Title: | Managing Member of the GP | |
CRMA SPV, LP | ||
By: | /s/ Bihua Chen | |
Name: | Bihua Chen | |
Title: | Attorney-in-fact |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
PERCEPTIVE LIFE SCIENCES MASTER FUND LTD | ||
By: | /s/ James H. Mannix | |
Name: | James H. Mannix | |
Title: | C.O.O. |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
LOGOS OPPORTUNITIES FUND I, L.P. | ||
By: Logos Opportunities GP, LLC | ||
Its General Partner | ||
By: | /s/ Graham Walmsley | |
Name: | Graham Walmsley | |
Title: | Manager |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR |
/s/ Franklin Berger |
FRANKLIN BERGER |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
ECOR1 VENTURE OPPORTUNITY FUND, L.P. | ||
By: Biotech Opportunity GP, LLC, its General Partner | ||
By: | /s/ Oleg Nodelman | |
Print Name: | Oleg Nodelman | |
Title: | Manager | |
ECOR1 CAPITAL FUND QUALIFIED, L.P. | ||
By: EcoR1 Capital LLC, its General Partner | ||
By: | /s/ Oleg Nodelman | |
Print Name: | Oleg Nodelman | |
Title: | Manager | |
ECOR1 CAPITAL FUND, L.P. | ||
By: EcoR1 Capital LLC, its General Partner | ||
By: | /s/ Oleg Nodelman | |
Print Name: | Oleg Nodelman | |
Title: | Manager |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
BOXER CAPITAL, LLC | ||
By: | /s/ Aaron Davis | |
Name: | Aaron Davis | |
Title: | Chief Executive Officer |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
MVP FUND II, L.P. | ||
By: | /s/ Terry Moore | |
Name: | Terry Moore | |
Title: | Managing Partner |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
SKYLINE LLLP | ||
By: | /s/ Donovan Ivan | |
Name: | Donovan Ivan | |
Title: | General Partner |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR |
/s/ Thaddäus Weber |
THADDÄUS WEBER |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
RIYADH VALLEY COMPANY SAUDI COMMERCIAL REGISTRATION NUMBER 1010299523 | ||
By: | /s/ Dr. Khalid Al-Saleh | |
Name: | Dr. Khalid Al-Saleh | |
Title: | Chief Executive Officer |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
F-PRIME CAPITAL PARTNERS HC CAMBRIDGE FUND IV LP | ||
By: | F-Prime Capital Partners Healthcare Advisors Fund IV LP, its general partner | |
By: | Impresa Holdings LLC, its general partner | |
By: | Impresa Management LLC, its managing partner | |
By: | /s/ Mary Bevelock Pendergast | |
Print Name: | Mary Bevelock Pendergast | |
Title: | Vice President | |
F-PRIME CAPITAL PARTNERS HC INTERNATIONAL FUND IV LP | ||
By: | F-Prime Capital Partners Healthcare Advisors Fund IV LP, its general partner | |
By: | Impresa Holdings LLC, its general partner | |
By: | Impresa Management LLC, its managing partner | |
By: | /s/ Mary Bevelock Pendergast | |
Print Name: | Mary Bevelock Pendergast | |
Title: | Vice President |
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
INVESTOR | ||
PFM HEALTHCARE MASTER FUND, L.P. | ||
By: Partner Fund Management, L.P., its investment adviser | ||
By: | /s/ Yuan DuBord | |
Name: | Yuan DuBord | |
Title: | CFO |
EXHIBIT A
INVESTORS
Investor Name |
||
2006 Ryan Family Trust | ||
Adam Radosti | ||
ALETHEA Biotech Fund, L.P. | ||
ALETHEA Fulcrum Fund, LP | ||
Alexandria Venture Investments, LLC | ||
Arthur Kern Revocable Trust | ||
Baker Dunn Family Trust | ||
Butler-Levin Revocable Trust | ||
Chory Worland Family Trust | ||
Christopher J. Kirk | ||
David L. Mahoney and Winnifred C. Ellis 1998 Family Trust | ||
Douglas J. Mallach | ||
Gerald J. Li | ||
Gerald J. Longa | ||
Goro Takeda | ||
Griffith Investors, LLC | ||
James H. Stebbins |
Investor Name |
||
James M. Cornelius | ||
Jerome A. Keeney | ||
Karl D. Handelsman | ||
LOA Investments, LLC | ||
Mark E. and Mary P. Davis Trust, Dated September 20 1995 | ||
P. Kent Hawryluk Revocable Trust | ||
Patrick Pak Tak Leong | ||
Raymond F. Schinazi | ||
Rebecca Elizabeth Schinazi 2006 Irrevocable Trust | ||
Richard A. Heyman and Anne E. Daigle Trust | ||
Twilight Venture Partners II, LLC | ||
WS Investment Company, LLC (2013A) | ||
Tony Hsu and Jennifer Lynn Hsu Revocable Trust | ||
Glen Robert Daugherty Trust, Dated 12/27/2002 | ||
Butler-Levin Revocable Trust | ||
EcoR1 Venture Opportunity Fund, L.P. | ||
EcoR1 Capital Fund Qualified, L.P. | ||
EcoR1 Capital Fund, L.P. | ||
Anthony M. Insogna and Jana L. Insogna Family Trust U/A Dtd 9/22/08, Trustees AM Insonga and JL Insogna | ||
Troy E. Wilson and Lemoure Eliasson, Co-Trustees of the Red Fish Blue Fish Trust, dated December 31, 2012 (as amended) |
Investor Name |
||
Heidi Henson Revocable Trust dated August 2, 2017 | ||
Francis P. McCormick as Trustee of the Francis P. McCormick Revocable Trust dated January 27, 2017 | ||
Partner Investments, L.P. | ||
PFM Healthcare Master Fund, L.P. | ||
Brace Pharmaceuticals LLC | ||
F-Prime Capital Partners HC International Fund IV LP | ||
F-Prime Capital Partners HC Cambridge Fund IV LP | ||
Takeda Ventures, Inc. | ||
Boxer Capital, LLC | ||
WS Investment Company, LLC (2016A) | ||
GC&H Investments, LLC | ||
MVP Fund II, L.P. | ||
Keith Murphy | ||
Riyadh Valley Company Saudi Commercial Registration Number 1010299523 | ||
Thaddäus Weber | ||
Millennium Trust Co., LLC Custodian FBO Peter K. Hawryluk Roth IRA A/C xxxx4xk75 |
Investor Name |
||
Millennium Trust Co., LLC Custodian FBO James H Stebbins Roth IRA a/c# xxxx15385 | ||
Bjorn E Koch | ||
Bertram Jon Marcus | ||
RTW Master Fund, Ltd. | ||
RTW Innovation Master Fund, Ltd. | ||
RTW Venture Fund Limited | ||
Cure Duchenne Ventures, LLC | ||
St. Pharm Co., Ltd. | ||
Eli Lilly and Company | ||
Cormorant Private Healthcare Fund II, LP | ||
Cormorant Global Healthcare Master Fund, LP | ||
CRMA SPV, LP | ||
Perceptive Life Sciences Master Fund LTD | ||
Logos Opportunities Fund I, L.P. | ||
Franklin Berger | ||
Skyline LLLP |
Exhibit 4.3
November 8, 2019
RTW Master Fund, Ltd.
RTW Innovation Master Fund, Ltd.
RTW Venture Fund Limited c/o
RTW Investments, LP 412 West
15th Street, Floor 9, New York,
NY, 10011 USA Attn: Roderick
Wong, M.D.
Re: IPO Participation Right
This letter agreement (this Agreement) memorializes the agreement and understanding between RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited (collectively, RTW), on the one hand, and Avidity Biosciences, Inc., a Delaware corporation (the Company), on the other hand, regarding the Companys grant to RTW of the right to participate in the Companys future initial public offering of its equity securities on the terms, and subject to the conditions, set forth below.
The Company is entering into this Agreement as a material inducement to cause RTW to enter into that certain Series C Preferred Stock Purchase Agreement, dated as of the date hereof, by and among the Company, RTW and the other purchasers named therein (the Purchase Agreement). Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement and, to the extent not defined therein, such terms shall have the meanings ascribed to them in that certain Registration Rights Agreement, dated as of the date hereof, by and among the Company, RTW and the parties named therein.
In consideration of the foregoing and the mutual promises and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, by execution of this Agreement, the parties hereto hereby agree as follows:
1. In connection with the Companys sale of shares of its common stock (Common Stock) to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act (the IPO), the Company shall, within a reasonable period of time preceding the consummation of the IPO and in compliance with all applicable laws and regulations, use commercially reasonable efforts to provide RTW with the opportunity to purchase shares of Common Stock to be sold in the IPO (including any over-allotment option by the underwriters to the IPO, if any) at the same price per share at which the Common Stock offered in the IPO are being offered to the public (the IPO Price) (such right, the Public Offering Participation Right). If RTW exercises its Public Offering Participation Right, RTW shall have the right to purchase up to a number of shares of Common Stock to be sold in the IPO equal to (a) the Participation Right Percentage (as defined below), multiplied by, (b) the aggregate number of shares of Common Stock to be sold in the IPO (including any overallotment option by the underwriters to the IPO, if any). RTW may assign its Public Offering Participation Right to any of its Affiliates. For the avoidance of doubt, nothing in this Section 1 is intended to limit the number of shares that RTW or its Affiliates may acquire in the IPO outside of its Public Offering Participation Right. For purposes of this Agreement, the Participation Right Percentage shall mean a fraction, the numerator of which shall be equal to 150% of the number of shares of Common Stock held by RTW and its Affiliates immediately prior to the IPO (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of any shares of the Companys preferred stock (Preferred Stock) held by RTW and its Affiliates immediately prior to the IPO), and the denominator of which shall be the total number of outstanding shares of Common Stock (including all shares of Common Stock issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock or other convertible securities then outstanding).
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2. Notwithstanding Section 1 above, in the event that either (a) the Company is advised by its outside legal counsel, the Securities and Exchange Commission (the SEC), the Financial Industry Regulatory Authority (FINRA) or any stock exchange on which the Common Stock is to be traded (the Exchange) that the offering or sale of the Companys securities to RTW as described above in Section 1 would violate any federal or state securities laws or the rules or regulations of the SEC, FINRA or the Exchange, or (b) the managing underwriter(s) reasonably determines that marketing factors require a limitation on the number of shares of Common Stock to be underwritten in connection with the IPO and request(s) that RTWs Public Offering Participation Right be subject to carve-backs, restrictions or other limitations (each of the events described in the foregoing clauses (a) or (b), a Cutback), then, in each case, the Company shall offer to RTW the right to purchase in a separate private placement (the Private Placement) (which shall be conducted concurrently with the IPO and the closing of which shall be contingent on the closing of the IPO), at the IPO Price, up to that number of shares of Common Stock equal to the difference between the number of shares of Common Stock that RTW would have been able to purchase pursuant to Section 1 above but for the applicable Cutback, and the number of shares of Common Stock that RTW was actually permitted to purchase in the IPO pursuant to Section 1, if any (the Private Sale Participation Right, and together with the Public Offering Participation Right, the Rights). Notwithstanding anything to the contrary set forth above, if any Cutback shall be imposed on RTW, such Cutback shall apply equally to any other individual or entity to which the Company has granted rights similar to the Public Offering Participation Rights (the Other Participating Investors), if any, with respect to the number of shares of Common Stock that RTW and such Other Participating Investors are prohibited from purchasing upon exercise of their respective rights. Any shares of Common Stock that RTW purchases in a Private Placement shall be exempt from the registration requirements of the Securities Act.
3. Notwithstanding the foregoing, RTW agrees that (a) in no event shall the Private Sale Participation Right be exercised in such a manner that, in the reasonable determination of the managing underwriter(s), would materially and adversely affect the IPO and (b) the number of shares RTW is entitled to purchase may be reduced or modified only to the extent reasonably requested by the Companys underwriter(s) as to not cause such material and adverse effect on the IPO, which reduction or modification shall be applied equally to each of RTW and the Other Participating Investors, if any, with respect to the number of shares of Common Stock that RTW and such Other Participating Investors are prohibited from purchasing upon exercise of their respective rights.
4. If RTW exercises its Private Sale Participation Right, the Company and RTW shall execute and deliver such documents that are (a) customary for a transaction structured as a concurrent private placement with a public offering and (b) reasonably satisfactory to the Company, RTW and the managing underwriter(s), if applicable.
5. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
6. For the avoidance of doubt, the rights described in this Agreement shall apply only to the IPO and shall not apply to any subsequent offering of the Companys securities. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement may not be modified, amended or terminated, in whole or in part, except by an agreement in
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writing signed by the parties hereto; provided, that, whether or not RTW exercises the Public Offering Participation Right or the Private Sale Participation Right, this Agreement shall automatically terminate and be of no further force or effect upon the consummation of the IPO and, if applicable, the Private Placement.
7. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
8. The governing law and dispute resolution provisions set forth in Section 6.3 and 6.15 of the Purchase Agreement are incorporated by reference herein, mutatis mutandis.
(The remainder of this page left intentionally blank.)
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Please confirm your agreement to the terms of this Agreement by counter-signature where indicated below.
Sincerely, | ||
AVIDITY BIOSCIENCES, INC. | ||
By: | /s/ Sarah Boyce | |
Name: | Sarah Boyce | |
Title: | Chief Executive Officer |
Accepted by: | ||
RTW MASTER FUND, LTD. | ||
By: | /s/ Roderick Wong, M.D. | |
Name: | Roderick Wong, M.D. | |
Title: | Director | |
RTW INNOVATION MASTER FUND, LTD. | ||
By: | /s/ Roderick Wong, M.D. | |
Name: | Roderick Wong, M.D. | |
Title: | Director | |
RTW VENTURE FUND LIMITED | ||
By: RTW Investments, LP, its Investment Manager | ||
By: | /s/ Roderick Wong, M.D. | |
Name: | Roderick Wong, M.D. | |
Title: | Managing Partner |
Exhibit 4.4
THIS WARRANT AND THE UNITS ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN SECTIONS 5.3 AND 5.4 BELOW, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
WARRANT TO PURCHASE LIMITED LIABILITY COMPANY SERIES A PREFERRED UNITS
Company: | AVIDITY NANOMEDICINES LLC, a Delaware limited liability company | |
Number of Units: | 16,474 | |
Type/Series of Units: | Series A Preferred Units | |
Warrant Price: | 2.2615 per Unit | |
Issue Date: | August 7, 2015 | |
Expiration Date: | August 7, 2025 See also Section 5.1(b). | |
Credit Facility: | This Warrant to Purchase Limited Liability Company Series A Preferred Units (Warrant) is issued in connection with that certain Loan and Security Agreement of even date herewith between Silicon Valley Bank and the Company (as amended and/or modified and in effect from time to time, the Loan Agreement). |
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any units issued upon exercise hereof, Holder) is entitled to purchase the number of fully paid and non-assessable units of limited liability company interest (the Units) of the Class (as defined below) of the above-named company (the Company) at the above-stated Warrant Price per Unit, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. Reference is made to Section 5.4 of this Warrant whereby Silicon Valley Bank shall transfer this Warrant to its parent company, SVB Financial Group.
This Warrant shall be exercisable for Series A Preferred Units (as may be adjusted from time to time pursuant to the provisions of this Warrant, the Class) as further described and defined in, and having the relative rights, powers, preferences and privileges as set forth in, the Companys Amended and Restated Operating Agreement dated as of January 31, 2014, as amended and/or restated and in effect from time to time (the Operating Agreement). As used herein, units refers generally to limited liability company interests in the Company, whether such interests be styled as units, percentage interests, units or otherwise in the Operating Agreement.
SECTION 1. EXERCISE.
1.1 Method of Exercise. Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached hereto as Appendix 1 and, unless Holder is exercising this Warrant pursuant to a cashless exercise set forth in Section 1.2, a check, wire transfer of same-day funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Units being purchased.
1.2 Cashless Exercise. On any exercise of this Warrant, in lieu of payment of the aggregate Warrant Price in the manner as specified in Section 1.1 above, but otherwise in accordance with the requirements of Section 1.1, Holder may elect to receive Units equal to the value of this Warrant, or portion hereof as to which this Warrant is being exercised. Thereupon, the Company shall issue to the Holder such number of fully paid and non-assessable Units as are computed using the following formula:
X = | Y(A-B)/A | |
where: | ||
X = | the number of Units to be issued to the Holder; | |
Y = | the number of Units with respect to which this Warrant is being exercised (inclusive of the Units surrendered to the Company in payment of the aggregate Warrant Price); | |
A = | the Fair Market Value (as determined pursuant to Section 1.3 below) of one Unit; and | |
B = | the Warrant Price. |
1.3 Fair Market Value. If the Companys common or ordinary units are then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a Trading Market) and the Class is common or ordinary units, the fair market value of a Unit shall be the closing price or last sale price of a common or ordinary unit reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Companys common or ordinary units are then traded in a Trading Market and the Class is a series of convertible preferred units or other units convertible into common or ordinary units, the fair market value of a Unit shall be the closing price or last sale price of a common or ordinary unit reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company multiplied by the number of common or ordinary units into which a unit of the Class is then convertible. If the Companys common or ordinary units are not then traded in a Trading Market, the Manager or Managers of the Company shall determine the fair market value of a Unit in its, his or their reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant. Within a reasonable time after Holder exercises this Warrant in the manner set forth in Section 1.1 or 1.2 above, if units of the Class are then certificated by the Company, the Company shall deliver to Holder a certificate representing the Units issued to Holder upon such exercise and, if this Warrant has not been fully exercised and has not expired, a new warrant of like tenor representing the Units not so acquired. If units of the Class are not then certificated by the Company, the Company will deliver to Holder such evidence of the issuance of such Units to Holder as required or permitted under the Operating Agreement or, if there be none, such evidence as Holder may reasonably request.
1.5 Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form, substance and amount to the Company or, in the case of mutilation, on surrender of this Warrant to the Company for cancellation, the Company shall, within a reasonable time, execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor and amount.
1.6 Treatment of Warrant Upon Acquisition of Company.
(a) Acquisition. For the purpose of this Warrant, Acquisition means any transaction or series of related transactions involving: (i) the sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company; (ii) any merger or consolidation of the Company into or with another person or entity (other than a merger or consolidation effected exclusively to change the Companys domicile), or any other corporate reorganization, in which the members and other holders of units of the Company in their capacity as such immediately prior to such merger, consolidation or reorganization, own less than a majority of the Companys (or the surviving or successor entitys) outstanding voting power (even if such voting power be limited solely to such matters as required by applicable law) immediately after such merger, consolidation or reorganization (or, if such Company members and other holders of units beneficially own a majority of the outstanding voting power (even if such voting power be limited solely to such matters as required by applicable law) of the surviving or successor entity as of immediately after such merger, consolidation or reorganization, such surviving or successor entity is not the Company); or (iii) any sale or other transfer by the members and/or other holders of units of the Company of units representing at least a majority of the Companys then-total outstanding combined voting power (even if such voting power be limited solely to such matters as required by applicable law).
(b) Treatment of Warrant at Acquisition. In the event of an Acquisition in which the consideration to be received by the Companys members and other holders of units consists solely of cash, solely of Marketable Securities or a combination of cash and Marketable Securities (a Cash/Public Acquisition), either (i) Holder shall exercise this Warrant pursuant to Section 1.1 and/or 1.2 and such exercise will be deemed effective immediately prior to and contingent upon the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will expire immediately prior to the consummation of such Acquisition.
(c) The Company shall provide Holder with written notice of its request relating to the Cash/Public Acquisition (together with such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such contemplated Cash/Public Acquisition giving rise to such notice), which is to be delivered to Holder not less than seven (7) Business Days prior to the closing of the proposed Cash/Public Acquisition. In the event the Company does not provide such notice, then if, immediately prior to the Cash/Public Acquisition, the fair market value of one Unit (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above would be greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Units (or such other securities) for which it shall not previously have been exercised, and the Company shall promptly notify the Holder of the number of Units (or such other securities) issued upon such exercise to the Holder and Holder shall be deemed to have restated each of the representations and warranties in Section 4 of the Warrant as the date thereof.
(d) Upon the closing of any Acquisition other than a Cash/Public Acquisition defined above, the acquiring, surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall thereafter be exercisable for the same securities and/or other property as would have been paid for the Units issuable upon exercise of the unexercised portion of this Warrant as if such Units were outstanding on and as of the closing of such Acquisition, subject to further adjustment from time to time in accordance with the provisions of this Warrant.
(e) As used in this Warrant, Marketable Securities means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) Holder would be able to publicly re-sell, within six (6) months and one day following the closing of such Acquisition, all of the issuers shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise this Warrant in full on or prior to the closing of such Acquisition.
SECTION 2. ADJUSTMENTS TO THE SHARES AND WARRANT PRICE.
2.1 Unit Dividends, Splits, Etc. If the Company declares or pays a dividend or distribution on the outstanding units of the Class payable in additional units of the Class or other units, securities or property (other than cash), then upon exercise of this Warrant, for each Unit acquired, Holder shall receive, without additional cost to Holder, the total number and kind of units, securities and property which Holder would have received had Holder owned the Units of record as of the date the dividend or distribution occurred. If the Company subdivides the outstanding units of the Class by reclassification or otherwise into a greater number of units, the number of Units purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding units of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of units, the Warrant Price shall be proportionately increased and the number of Units shall be proportionately decreased.
2.2 Reclassification, Exchange, Combinations or Substitution. Upon any event whereby all of the outstanding units of the Class are reclassified, exchanged, combined, substituted, or replaced for, into, with or by Company securities of a different class and/or series, then from and after the consummation of such event, this Warrant will be exercisable for the number, class and series of Company securities that Holder would have received had the Units been outstanding on and as of the consummation of such event, and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations substitutions, replacements or other similar events.
2.3 Conversion of Convertible Units. If the Class is a class, type series or other designation of convertible preferred units or other units convertible into common or ordinary units, in the event that all outstanding units of the Class are converted, automatically or by action of the holders thereof, into common or ordinary units pursuant to the provisions of the Operating Agreement, including, without limitation, in connection with the Companys initial, underwritten public offering and sale of its units pursuant to an effective registration statement under the Act (the IPO), then from and after the date on which all outstanding units of the Class have been so converted, this Warrant shall be exercisable for such number of common or ordinary units into which the Units would have been converted had the Units been outstanding on the date of such conversion, and the Warrant Price shall equal the Warrant Price in effect as of immediately prior to such conversion divided by the number of common or ordinary units into which one Unit would have been converted, all subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.
2.4 Adjustments for Diluting Issuances. Without duplication of any adjustment otherwise provided for in this Section 2, the number of common or ordinary units issuable upon conversion of the Units shall be subject to anti-dilution adjustment from time to time in the manner set forth in Section 3.03(d)(iv) of the Operating Agreement as if the Units were issued and outstanding on and as of the date of any such required adjustment.
2.5 No Fractional Unit. No fractional Unit shall be issuable upon exercise of this Warrant and the number of Units to be issued shall be rounded down to the nearest whole Unit. If a fractional Unit interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional Unit interest by paying Holder in cash the amount computed by multiplying the fractional interest by (i) the fair market value (as determined in accordance with Section 1.3 above) of a full Unit, less (ii) the then-effective Warrant Price.
2.6 Notice/Certificate as to Adjustments. Upon each adjustment of the Warrant Price, Class and/or number of Units, the Company, at the Companys expense, shall notify Holder in writing within a reasonable time setting forth the adjustments to the Warrant Price, Class and/or number of Units and facts upon which such adjustment is based. The
Company shall, upon written request from Holder, furnish Holder with a certificate of its Manager, including computations of such adjustment and the Warrant Price, Class and number of Units in effect upon the date of such adjustment.
SECTION 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company represents and warrants to, and agrees with, the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per unit at which units of the Class were last sold and issued prior to the Issue Date hereof in an arms-length transaction in which at least $500,000 of such units were sold.
(b) All Units which may be issued upon the exercise of this Warrant, and all units and/or other securities, if any, issuable upon conversion of the Units, shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein, under the Operating Agreement or under applicable federal and state securities laws. The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued units such number of units of the Class, common or ordinary units and other securities as will be sufficient to permit the exercise in full of this Warrant and the conversion of the Units into common or ordinary units or such other securities, if any.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete, in all material respects, as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time to:
(a) declare any dividend or distribution upon the outstanding units of the Class or, if units of the Class are then convertible into common or ordinary units, such common or ordinary units, whether in cash, property, units, or other securities and whether or not a regular or periodic cash dividend or distribution (other than a distribution of cash upon the outstanding units of the Class and/or common or ordinary units made solely for the purpose of permitting the holders thereof to satisfy their respective federal and state tax obligations in respect of the taxable income of the Company);
(b) offer for subscription or sale pro rata to all holders of the outstanding units of the Class any additional Company units of any type, class, series or other designation (other than pursuant to contractual pre-emptive rights);
(c) effect any reclassification, exchange, combination, substitution, reorganization or recapitalization of the outstanding units of the Class;
(d) effect an Acquisition or to liquidate, dissolve or wind up; or
(e) effect an IPO;
then, in connection with each such event, the Company shall give Holder:
(1) in respect of the matters referred to in (a) and (b) above, at least seven (7) Business Days prior written notice of the earlier to occur of (i) the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of outstanding units of the Class will be entitled thereto) or for determining rights to vote, if any, or (ii) the closing or effective date of such event;
(2) in the case of the matters referred to in (c) and (d) above at least seven (7) Business Days prior written notice of the date when the same will take place (and specifying the date on which the holders of outstanding units of the Class will be entitled to exchange their units for the securities or other property deliverable upon the occurrence of such event); and
(3) with respect to the IPO, at least seven (7) Business Days prior written notice of the date on which the Company proposes to file its registration statement in connection therewith.
Reference is made to Section 1.6(c) whereby this Warrant will be deemed to be exercised pursuant to Section 1.2 hereof if the Company does not give written notice to Holder of a Cash/Public Acquisition as required by the terms hereof. Company will also provide information requested by Holder that is reasonably necessary to enable Holder to comply with Holders accounting or reporting requirements.
SECTION 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.
The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder are being acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Units.
4.2 Disclosure of Information. Holder is aware of the Companys business affairs and financial condition and has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act. Holder understands that this Warrant and the Units issuable upon exercise hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and the Units issued upon any exercise hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. Holder is aware of the provisions of Rule 144 promulgated under the Act.
4.6 Market Stand-off Agreement. Holder hereby agrees that Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any common units or other securities of Company held by Holder (other than those included in the registration) during the 180-day period following the effective date of the IPO (or such longer period not to exceed 34 days after the expiration of the 180-day period, as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation) (the Market Standoff Provision); provided, that all officers and managers of the Company and holders of at least one percent (1%) of the Companys voting securities are bound by and have entered into similar agreements. The Market Stand-Off Provision may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Units in the same manner as such amendment, modification or waiver affects the rights associated with all other units of the same series and type as the Units granted pursuant to this Warrant.
4.7 Rights as Member. Without limiting any provision of this Warrant, Holder agrees that, as a Holder of this Warrant, it will not have any rights as a member of the Company unless and until the exercise of this Warrant, and then only with respect to the Units issued upon such exercise. Upon exercise of this Warrant, the Company agrees that Holder shall automatically and without further action by any person be admitted as a member of the Company under the Operating Agreement with respect to the Units issued upon such exercise.
4.8 No Public Market. Holder understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the securities issuable upon exercise of this Warrant.
SECTION 5. MISCELLANEOUS.
5.1 Term; Automatic Cashless Exercise Upon Expiration.
(a) Term. Subject to the provisions of Section 1.6 above, this Warrant is exercisable in whole or in part at any time and from time to time on or before 6:00 PM, Pacific time, on the Expiration Date and shall be void thereafter.
(b) Automatic Cashless Exercise upon Expiration. In the event that, upon the Expiration Date, the fair market value of one Unit (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Units (or such other securities) for which it shall not previously have been exercised, and the Company shall, within a reasonable time, deliver a certificate representing the Units (or such other securities) issued upon such exercise to Holder.
5.2 Legends. Each certificate evidencing Units (and each certificate evidencing securities issued upon conversion of any Units, if any) shall be imprinted with a legend in substantially the following form:
THE UNITS EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN THAT CERTAIN WARRANT TO PURCHASE LIMITED LIABILITY COMPANY SERIES A PREFERRED UNITS ISSUED BY THE ISSUER TO SILICON VALLEY BANK DATED AUGUST 7, 2015, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the Units issued upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Units, if any) may not be transferred or assigned in whole or in part except in compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Banks parent company) or any other
affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act.
5.4 Transfer Procedure. After receipt by Silicon Valley Bank of the executed Warrant, Silicon Valley Bank will transfer all of this Warrant to its parent company, SVB Financial Group. By its acceptance of this Warrant, SVB Financial Group hereby makes to the Company each of the representations and warranties set forth in Section 4 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Units issued upon exercise of this Warrant (or the securities issued upon conversion of the Units, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant and/or Units (and/or securities issued upon conversion of the Units, if any) being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); and provided further, that any subsequent transferee other than SVB Financial Group shall agree in writing with the Company to be bound by all of the terms and conditions of this Warrant; and provided, further, that any transfer of Units (or of securities issued upon conversion of the Units, if any), shall be subject to the provisions of the Operating Agreement. Notwithstanding any contrary provision herein, at all times prior to the IPO, Holder may not, without the Companys prior written consent, transfer this Warrant or any portion hereof, or any Units issued upon any exercise hereof, or any units or other securities issued upon any conversion of any Units issued upon any exercise hereof, to any person or entity who directly competes with the Company, except in connection with an Acquisition of the Company by such a direct competitor.
5.5 Notices. All notices and other communications hereunder from the Company to the Holder, or vice versa, shall be deemed delivered and effective (i) when given personally, (ii) on the third (3rd) Business Day after being mailed by first-class registered or certified mail, postage prepaid, (iii) upon actual receipt if given by facsimile or electronic mail and such receipt is confirmed in writing by the recipient, or (iv) on the first Business Day following delivery to a reliable overnight courier service, courier fee prepaid, in any case at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such Holder from time to time in accordance with the provisions of this Section 5.5. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HA 215
Santa Clara, California 95054
Telephone: 408-654-7400
Facsimile: 408-988-8317
Email: derivatives@svb.com
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Avidity NanoMedicines LLC
Attn: Troy Wilson
10975 N. Torrey Pines Road, Suite 150
La Jolla, California 92037
With a copy (which shall not constitute notice) to:
Cooley LLP
Attn: Joshua Seidenfeld, Esq.
3175 Hanover Street
Palo Alto, California 94304
5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.
5.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
5.8 Counterparts; Facsimile/Electronic Signatures. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. Any signature page delivered electronically or by facsimile shall be binding to the same extent as an original signature page with regards to any agreement subject to the terms hereof or any amendment thereto.
5.9 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.
5.10 Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.
5.11 Business Days. Business Day is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.
[Remainder of page left blank intentionally]
[Signature page follows]
IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Limited Liability Company Series A Preferred Units to be executed by their duly authorized representatives effective as of the Issue Date written above.
COMPANY | ||
AVIDITY NANOMEDICINES LLC | ||
By: | /s/ Troy Wilson | |
Troy Wilson, President and Chief Executive Officer |
HOLDER | ||
SILICON VALLEY BANK | ||
By: | /s/ Anthony Flores | |
Name: | Anthony Flores | |
Title: | Vice President |
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned Holder hereby exercises its right purchase units of the Series A Preferred Units of Avidity NanoMedicines LLC (the Company) in accordance with the attached Warrant To Purchase Limited Liability Company Series A Preferred Units, and tenders payment of the aggregate Warrant Price for such units as follows:
[ ] check in the amount of $ payable to order of the Company enclosed herewith
[ ] Wire transfer of immediately available funds to the Companys account
[ ] Cashless Exercise pursuant to Section 1.2 of the Warrant
[ ] Other [Describe]
2. If units of the above-stated Class are currently certificated by the Company, please issue a certificate or certificates representing the Units in the name specified below:
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Holders Name | ||
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(Address) |
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Section 4 of the Warrant to Purchase Limited Liability Company Series A Preferred Units as of the date hereof.
HOLDER: | ||
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By: |
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Name: |
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Title: |
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(Date): |
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Exhibit 4.5
THIS WARRANT AND THE UNITS ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN SECTIONS 5.3 AND 5.4 BELOW, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
WARRANT TO PURCHASE LIMITED LIABILITY COMPANY COMMON UNITS
Company: | AVIDITY BIOSCIENCES LLC, a Delaware limited liability company | |
Number of Units: | 19,918 | |
Type/Series of Units: | Common | |
Warrant Price: | $0.25 per unit | |
Issue Date: | June 9, 2017 | |
Expiration Date: | June 9, 2024. See also Section 5.1(b). | |
Credit Facility: | This Warrant to Purchase Limited Liability Company Common Units (as amended and/or modified and in effect from time to time, the Warrant) is issued in connection with the First Amendment to Loan and Security Agreement dated as of even date herewith between Silicon Valley Bank and the Company, which amends the Loan and Security Agreement dated as of August 7, 2015, between Silicon Valley Bank and the Company (as amended and/or modified and in effect from time to time, the Loan Agreement). |
THIS WARRANT PROVIDES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any units issued upon exercise hereof, Holder) is entitled to purchase the number of fully paid and non-assessable units of limited liability company interest (the Units) of the Class (as defined below) of the above-named company (the Company) at the above-stated Warrant Price per Unit, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. Reference is made to Section 5.4 of this Warrant whereby Silicon Valley Bank shall transfer this Warrant to its parent company, SVB Financial Group.
This Warrant shall be exercisable for Common Units (as may be adjusted from time to time pursuant to the provisions of this Warrant, the Class) as further described and defined in, and having the relative rights, powers, preferences and privileges as set forth in, the Companys Amended and Restated Operating Agreement dated as of January 31, 2014, as amended and/or restated and in effect from time to time (the Operating Agreement). As used herein, units refers generally to limited liability company interests in the Company, whether such interests be styled as units, percentage interests, units or otherwise in the Operating Agreement.
SECTION 1. EXERCISE.
1.1 Method of Exercise. Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached hereto as Appendix 1 and, unless Holder is exercising this Warrant pursuant to a cashless exercise set forth in Section 1.2, a check, wire transfer of same-day funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Units being purchased.
1.2 Cashless Exercise. On any exercise of this Warrant, in lieu of payment of the aggregate Warrant Price in the manner as specified in Section 1.1 above, but otherwise in accordance with the requirements of Section 1.1, Holder may elect to receive Units equal to the value of this Warrant, or portion hereof as to which this Warrant is being exercised. Thereupon, the Company shall issue to the Holder such number of fully paid and non-assessable Units as are computed using the following formula:
X = | Y(A-B)/A |
where:
X = | the number of Units to be issued to the Holder; | |
Y = | the number of Units with respect to which this Warrant is being exercised (inclusive of the Units surrendered to the Company in payment of the aggregate Warrant Price); | |
A = | the Fair Market Value (as determined pursuant to Section 1.3 below) of one Unit; and | |
B = | the Warrant Price. |
1.3 Fair Market Value. If the Companys common or ordinary units are then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a Trading Market) and the Class is common or ordinary units, the fair market value of a Unit shall be the closing price or last sale price of a common or ordinary unit reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Companys common or ordinary units are then traded in a Trading Market and the Class is a series of convertible preferred units or other units convertible into common or ordinary units, the fair market value of a Unit shall be the closing price or last sale price of a common or ordinary unit reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company multiplied by the number of common or ordinary units into which a unit of the Class is then convertible. If the Companys common or ordinary units are not then traded in a Trading Market, the Manager or Managers of the Company shall determine the fair market value of a Unit in its, his or their reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant. Within a reasonable time after Holder exercises this Warrant in the manner set forth in Section 1.1 or 1.2 above, if units of the Class are then certificated by the Company, the Company shall deliver to Holder a certificate representing the Units issued to Holder upon such exercise and, if this Warrant has not been fully exercised and has not expired, a new warrant of like tenor representing the Units not so acquired. If units of the Class are not then certificated by the Company, the Company will deliver to Holder such evidence of the issuance of such Units to Holder as required or permitted under the Operating Agreement or, if there be none, such evidence as Holder may reasonably request.
1.5 Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form, substance and amount to the Company or, in the case of mutilation, on surrender of this Warrant to the Company for cancellation, the Company shall, within a reasonable time, execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor and amount.
1.6 Treatment of Warrant Upon Acquisition of Company.
(a) Acquisition. For the purpose of this Warrant, Acquisition means any transaction or series of related transactions involving: (i) the sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company; (ii) any merger or consolidation of the Company into or with another person or entity (other than a merger or consolidation effected exclusively to change the Companys domicile), or any other corporate reorganization, in which the members and other holders of units of the Company in their capacity as such immediately prior to such merger, consolidation or reorganization, own less than a majority of the Companys (or the surviving or successor entitys) outstanding voting power (even if such voting power be limited solely to such matters as required by applicable law) immediately after such merger, consolidation or reorganization (or, if such Company members and other holders of units beneficially own a majority of the outstanding voting power (even if such voting power be limited solely to such matters as required by applicable law) of the surviving or successor entity as of immediately after such merger, consolidation or reorganization, such surviving or successor entity is not the Company); or (iii) any sale or other transfer by the members and/or other holders of units of the Company of units representing at least a majority of the Companys then-total outstanding combined voting power (even if such voting power be limited solely to such matters as required by applicable law).
(b) Treatment of Warrant at Acquisition. In the event of an Acquisition in which the consideration to be received by the Companys members and other holders of units consists solely of cash, solely of Marketable Securities or a combination of cash and Marketable Securities (a Cash/Public Acquisition), and the fair market value of one Unit as determined in accordance with Section 1.3 above would be greater than the Warrant Price in effect on such date immediately prior to such Cash/Public Acquisition, and Holder has not exercised this Warrant pursuant to Section 1.1 above as to all Units, then this Warrant shall automatically be deemed to be Cashless Exercised pursuant to Section 1.2 above as to all Units effective immediately prior to and contingent upon the consummation of a Cash/Public Acquisition. In connection with such Cashless Exercise, Holder shall be deemed to have restated each of the representations and warranties in Section 4 of the Warrant as the date thereof and the Company shall promptly notify the Holder of the number of Shares (or such other securities) issued upon exercise. In the event of a Cash/Public Acquisition where the fair market value of one Unit as determined in accordance with Section 1.3 above would be less than the Warrant Price in effect immediately prior to such Cash/Public Acquisition, then this Warrant will expire immediately prior to the consummation of such Cash/Public Acquisition.
(c) Upon the closing of any Acquisition other than a Cash/Public Acquisition defined above, the acquiring, surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall thereafter be exercisable for the same securities and/or other property as would have been paid for the Units issuable upon exercise of the unexercised portion of this Warrant as if such Units were outstanding on and as of the closing of such Acquisition, subject to further adjustment from time to time in accordance with the provisions of this Warrant.
(d) As used in this Warrant, Marketable Securities means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) following the closing of such Acquisition, Holder would not be restricted from publicly re-selling all of the issuers shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing of such Acquisition, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, and (y) does not extend beyond six (6) months from the closing of such Acquisition.
SECTION 2. ADJUSTMENTS TO THE SHARES AND WARRANT PRICE.
2.1 Unit Dividends, Splits, Etc. If the Company declares or pays a dividend or distribution on the outstanding units of the Class payable in additional units of the Class or other units, securities or property (other than cash), then upon exercise of this Warrant, for each Unit acquired, Holder shall receive, without additional cost to Holder, the total number and kind of units, securities and property which Holder would have received had Holder owned the Units of record as of the date the dividend or distribution occurred. If the Company subdivides the outstanding units of the Class by reclassification or otherwise into a greater number of units, the number of Units purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding units of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of units, the Warrant Price shall be proportionately increased and the number of Units shall be proportionately decreased.
2.2 Reclassification, Exchange, Combinations or Substitution. Upon any event whereby all of the outstanding units of the Class are reclassified, exchanged, combined, substituted, or replaced for, into, with or by Company securities of a different class and/or series, then from and after the consummation of such event, this Warrant will be exercisable for the number, class and series of Company securities that Holder would have received had the Units been outstanding on and as of the consummation of such event, and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations substitutions, replacements or other similar events.
2.3 Conversion of Convertible Units. If the Class is a class, type series or other designation of convertible preferred units or other units convertible into common or ordinary units, in the event that all outstanding units of the Class are converted, automatically or by action of the holders thereof, into common or ordinary units pursuant to the provisions of the Operating Agreement, including, without limitation, in connection with the Companys initial, underwritten public offering and sale of its units pursuant to an effective registration statement under the Act (the IPO), then from and after the date on which all outstanding units of the Class have been so converted, this Warrant shall be exercisable for such number of common or ordinary units into which the Units would have been converted had the Units been outstanding on the date of such conversion, and the Warrant Price shall equal the Warrant Price in effect as of immediately prior to such conversion divided by the number of common or ordinary units into which one Unit would have been converted, all subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.
2.4 Adjustments for Diluting Issuances. Without duplication of any adjustment otherwise provided for in this Section 2, the number of common or ordinary units issuable upon conversion of the Units shall be subject to anti-dilution adjustment from time to time in the manner set forth in Section 3.03(d)(iv) of the Operating Agreement as if the Units were issued and outstanding on and as of the date of any such required adjustment.
2.5 No Fractional Unit. No fractional Unit shall be issuable upon exercise of this Warrant and the number of Units to be issued shall be rounded down to the nearest whole Unit. If a fractional Unit interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional Unit interest by paying Holder in cash the amount computed by multiplying the fractional interest by (i) the fair market value (as determined in accordance with Section 1.3 above) of a full Unit, less (ii) the then-effective Warrant Price.
2.6 Notice/Certificate as to Adjustments. Upon each adjustment of the Warrant Price, Class and/or number of Units, the Company, at the Companys expense, shall notify Holder in writing within a reasonable time setting forth the adjustments to the Warrant Price, Class and/or number of Units and facts upon which such adjustment is based. The Company shall, upon written request from Holder, furnish Holder with a certificate of its Manager, including computations of such adjustment and the Warrant Price, Class and number of Units in effect upon the date of such adjustment.
SECTION 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company represents and warrants to, and agrees with, the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of a unit of the Class as set forth in the most recently completed 409a valuation report of the Companys Common Units which valued the Companys Common Units as of December 31, 2016.
(b) All Units which may be issued upon the exercise of this Warrant, and all units and/or other securities, if any, issuable upon conversion of the Units, shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein, under the Operating Agreement or under applicable federal and state securities laws. The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued units such number of units of the Class, common or ordinary units and other securities as will be sufficient to permit the exercise in full of this Warrant and the conversion of the Units into common or ordinary units or such other securities, if any.
(c) The Companys capitalization table attached hereto as Schedule 1 is true and complete, in all material respects, as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time to:
(a) declare any dividend or distribution upon the outstanding units of the Class or, if units of the Class are then convertible into common or ordinary units, such common or ordinary units, whether in cash, property, units, or other securities and whether or not a regular or periodic cash dividend or distribution (other than a distribution of cash upon the outstanding units of the Class and/or common or ordinary units made solely for the purpose of permitting the holders thereof to satisfy their respective federal and state tax obligations in respect of the taxable income of the Company);
(b) offer for subscription or sale pro rata to all holders of the outstanding units of the Class any additional Company units of any type, class, series or other designation (other than pursuant to contractual pre-emptive rights);
(c) effect any reclassification, exchange, combination, substitution, reorganization or recapitalization of the outstanding units of the Class;
(d) effect an Acquisition or to liquidate, dissolve or wind up; or
(e) effect an IPO;
then, in connection with each such event, the Company shall give Holder:
(1) in the case of the matters referred to in (a) and (b) above, at least seven (7) Business Days prior written notice of the earlier to occur of the effective date thereof or on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of outstanding units of the Class will be entitled thereto) or for determining rights to vote, if any;
(2) in the case of the matters referred to in (c) and (d) above at least seven (7) Business Days prior written notice of the date when the same will take place (and specifying the date on which the holders of outstanding units of the Class will be entitled to exchange their units for the securities or other property deliverable upon the occurrence of such event and such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such event giving rise to the notice); and
(3) with respect to the IPO, at least seven (7) Business Days prior written notice of the date on which the Company proposes to file its registration statement in connection therewith.
Company will also provide information requested by Holder that is reasonably necessary to enable Holder to comply with Holders accounting or reporting requirements.
SECTION 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.
The Holder represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by Holder are being acquired for investment for Holders account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Units.
4.2 Disclosure of Information. Holder is aware of the Companys business affairs and financial condition and has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.
4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holders investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an accredited investor within the meaning of Regulation D promulgated under the Act.
4.5 The Act. Holder understands that this Warrant and the Units issuable upon exercise hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holders investment intent as expressed herein. Holder understands that this Warrant and
the Units issued upon any exercise hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. Holder is aware of the provisions of Rule 144 promulgated under the Act.
4.6 Market Stand-off Agreement. Holder hereby agrees that Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any common units or other securities of Company held by Holder (other than those included in the registration) during the 180-day period following the effective date of the IPO (or such longer period not to exceed 34 days after the expiration of the 180-day period, as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation) (the Market Standoff Provision); provided, that all officers and managers of the Company and holders of at least one percent (1%) of the Companys voting securities are bound by and have entered into similar agreements. The Market Stand-Off Provision may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Units in the same manner as such amendment, modification or waiver affects the rights associated with all other units of the same series and type as the Units granted pursuant to this Warrant.
4.7 Rights as Member. Without limiting any provision of this Warrant, Holder agrees that, as a Holder of this Warrant, it will not have any rights as a member of the Company unless and until the exercise of this Warrant, and then only with respect to the Units issued upon such exercise. Upon exercise of this Warrant, the Company agrees that Holder shall automatically and without further action by any person be admitted as a member of the Company under the Operating Agreement with respect to the Units issued upon such exercise.
4.8 No Public Market. Holder understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the securities issuable upon exercise of this Warrant.
SECTION 5. MISCELLANEOUS.
5.1 Term; Automatic Cashless Conversion Upon Expiration.
(a) Term. Subject to the provisions of Section 1.6 above, this Warrant is exercisable in whole or in part at any time and from time to time on or before 6:00 PM, Pacific time, on the Expiration Date and shall be void thereafter.
(b) Automatic Cashless Exercise upon Expiration. In the event that, upon the Expiration Date, the fair market value of one Unit (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Units (or such other securities) for which it shall not previously have been exercised, and the Company shall, within a reasonable time, deliver a certificate representing the Units (or such other securities) issued upon such exercise to Holder.
5.2 Legends. Each certificate evidencing Units, if any (and each certificate evidencing securities issued upon conversion of any Units, if any) shall be imprinted with a legend in substantially the following form:
THE UNITS EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN THAT CERTAIN WARRANT TO PURCHASE LIMITED LIABILITY COMPANY COMMON UNITS ISSUED BY THE ISSUER TO SILICON VALLEY BANK DATED JUNE 9, 2017 MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the Units issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Units, if any) may not be transferred or assigned in whole or in part except in compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Banks parent company) or any other affiliate of Holder, provided that any such transferee is an accredited investor as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act.
5.4 Transfer Procedure. After receipt by Silicon Valley Bank of the executed Warrant, Silicon Valley Bank will transfer all of this Warrant to its parent company, SVB Financial Group. By its acceptance of this Warrant, SVB Financial Group hereby makes to the Company each of the representations and warranties set forth in Section 4 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Units issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Units, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant and/or Units (and/or securities issued upon conversion of the Units, if any) being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); and provided further, that any subsequent transferee other than SVB Financial Group shall agree in writing with the Company to be bound by all of the terms and conditions of this Warrant;
and provided, further, that any transfer of Units (or of securities issued upon conversion of the Units, if any), shall be subject to the provisions of the Operating Agreement. Notwithstanding any contrary provision herein, at all times prior to the IPO, Holder may not, without the Companys prior written consent, transfer this Warrant or any portion hereof, or any Units issued upon any exercise hereof, or any units or other securities issued upon any conversion of any Units issued upon any exercise hereof, to any person or entity who directly competes with the Company, except in connection with an Acquisition of the Company by such a direct competitor.
5.5 Notices. All notices and other communications hereunder from the Company to the Holder, or vice versa, shall be deemed delivered and effective (i) when given personally, (ii) on the third (3rd) Business Day after being mailed by first-class registered or certified mail, postage prepaid, (iii) upon actual receipt if given by electronic mail and such receipt is confirmed in writing by the recipient, or (iv) on the first Business Day following delivery to a reliable overnight courier service, courier fee prepaid, in any case at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such Holder from time to time in accordance with the provisions of this Section 5.5. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:
SVB Financial Group
Attn: Treasury Department
3003 Tasman Drive, HC 215
Santa Clara, California 95054
Telephone: 408-654-7400
Email address: derivatives@svb.com
Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:
Avidity Biosciences LLC
Attn: Troy Wilson
10975 N. Torrey Pines Road, Suite 150
La Jolla, California 92037
With a copy (which shall not constitute notice) to:
Cooley LLP
Attn: Joshua Seidenfeld, Esq.
3175 Hanover Street
Palo Alto, California 94304
5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.
5.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees.
5.8 Counterparts; Facsimile/Electronic Signatures. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. Any signature page delivered electronically or by facsimile shall be binding to the same extent as an original signature page with regards to any agreement subject to the terms hereof or any amendment thereto.
5.9 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.
5.10 Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.
5.11 Business Days. Business Day is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.
[Remainder of page left blank intentionally]
[Signature page follows]
IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Limited Liability Company Common Units to be executed by their duly authorized representatives effective as of the Issue Date written above.
COMPANY
AVIDITY BIOSCIENCES LLC | ||
By: | /s/ Troy Wilson | |
Name: | Troy Wilson | |
Title: | President and CEO | |
HOLDER | ||
SILICON VALLEY BANK | ||
By: | /s/ Anthony Flores | |
Name: | Anthony Flores | |
Title: | Director |
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned Holder hereby exercises its right purchase units of the Common Units of AVIDITY BIOSCIENCES LLC (the Company) in accordance with the attached Warrant To Purchase Limited Liability Common Units, and tenders payment of the aggregate Warrant Price for such units as follows:
[ ] | check in the amount of $ payable to order of the Company enclosed herewith |
[ ] | Wire transfer of immediately available funds to the Companys account |
[ ] | Cashless Exercise pursuant to Section 1.2 of the Warrant |
[ ] | Other [Describe] |
2. If units of the above-stated Class are currently certificated by the Company, please issue a certificate or certificates representing the Units in the name specified below:
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Holders Name | ||
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(Address) |
3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Section 4 of the Warrant to Purchase Limited Liability Company Common Units as of the date hereof.
HOLDER: | ||
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By: |
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Name: |
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Title: |
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Date: |
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Exhibit 10.1
AMENDED AND RESTATED
AVIDITY BIOSCIENCES, INC.
2013 EQUITY INCENTIVE PLAN
ADOPTED: JANUARY 28, 2013
APPROVED BY MEMBERS: JANUARY 28, 2013
AMENDED BY MEMBERS AND MANAGERS: DECEMBER 19, 2016
AMENDED BY THE BOARD OF DIRECTORS: NOVEMBER 7, 2019
AMENDED BY THE STOCKHOLDERS: NOVEMBER 7, 2019
TERMINATION DATE: JANUARY 27, 2023
1. GENERAL.
(a) Eligible Award Recipients. Employees, Directors, eligible Consultants and Other Service Providers of the Company and its Affiliates are eligible to receive Awards.
(b) Available Awards. The Plan provides for the grant of Options and Restricted Share Awards.
(c) Purpose. The Plan, through the granting of Awards, is intended to help the Company secure and retain the services of eligible Award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and provide a means by which the eligible recipients may benefit from increases in the value of the Shares.
2. ADMINISTRATION.
(a) Administration by Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).
(b) Powers of Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise; (E) the number of Shares subject to an Award; and (F) the Fair Market Value applicable to an Award.
(ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement, in a manner and to the extent it deems necessary or expedient to make the Plan or Award fully effective.
(iii) To settle all controversies regarding the Plan and Awards granted under it.
(iv) To accelerate, in whole or in part, the time at which an Award may be exercised or vest.
(v) To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of the Plan will not impair a Participants rights under his or her then-outstanding Award without his or her written consent except as provided in subsection (viii) below.
(vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to certain nonqualified deferred compensation under Section 409A of the Code and/or to make the Plan or Awards granted under the Plan exempt from or compliant with the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. However, if required by applicable law, and except as provided in Section 10(a) relating to Capitalization Adjustments, no amendment will be effective unless approved by the Companys Stockholders if such approval is required by applicable law. Except as provided in the Plan (including subsection (viii) below) or an Award Agreement, no amendment of the Plan will impair a Participants rights under an outstanding Award without his or her written consent.
(vii) To submit any amendment to the Plan for stockholder approval.
(viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that, a Participants rights under any Award will not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, (1) a Participants rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participants rights, and (2) subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Awards without the affected Participants consent to bring the Award into compliance with Section 409A of the Code or to comply with other applicable laws.
(ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards.
(x) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors, eligible Consultants, and Other Service Providers who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary for immaterial modifications to the Plan or any Award Agreement that are required for compliance with the laws of the relevant foreign jurisdiction).
(xi) To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Award; (B) the cancellation of any outstanding Award and the grant in substitution therefore of a new (1) Option, (2) Restricted Share Award, (3) cash and/or (4) other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of Shares as the cancelled Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.
(c) Delegation to Committee. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Committee may, at any time, abolish the subcommittee and/or revest in the Committee any powers delegated to the subcommittee. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(d) Delegation to an Officer. The Board may delegate to one or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options (and, to the extent permitted by applicable law, other Awards) and, to the extent permitted by applicable law, the terms of such Options, and (ii) determine the number of Shares to be subject to such Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify the total number of Shares that may be subject to the Awards granted by such Officer and that
such Officer may not grant an Award to himself or herself. Any such Awards will be granted on the form of Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 14(u) below.
(e) Effect of Boards Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
3. SHARES SUBJECT TO THE PLAN.
(a) Share Reserve.
(i) Subject to Section 10(a) relating to Capitalization Adjustments, the aggregate number of Shares that may be issued pursuant to Awards from and after the Effective Date will not exceed 10,065,722 Shares (the Share Reserve).
(ii) For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of Shares that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Awards except as provided in Section 8(a).
(b) Reversion of Shares to the Share Reserve. If an Award or any portion thereof (i) expires or otherwise terminates without all of the Shares covered by such Award having been issued, or (ii) is settled in cash (i.e., the Participant receives cash rather than Shares), such expiration, termination or settlement will not reduce (or otherwise offset) the number of Shares that may be available for issuance under the Plan. If any Shares issued pursuant to an Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such Shares in the Participant, then the Shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any Shares reacquired by the Company in satisfaction of tax withholding obligations on an Award or as consideration for the exercise or purchase price of an Award will again become available for issuance under the Plan.
4. ELIGIBILITY OF CONSULTANTS AND OTHER SERVICE PROVIDERS.
A Consultant or Other Service Provider will not be eligible for the grant of an Award if, at the time of grant, either the offer or sale of the Companys securities to such Consultant or Other Service Provider is not exempt under Rule 701 because of the nature of the services that the Consultant or Other Service Provider is providing to the Company, because the Consultant or Other Service Provider is not a natural person, or because of any other provision of Rule 701, unless the
Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions.
5. OPTION TERMS.
Each Option will be in such form and will contain such terms and conditions as the Board deems appropriate. The provisions of separate Options need not be identical; provided, however, that each Option Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Option Agreement or otherwise) the substance of each of the following provisions:
(a) Term. No Option will be exercisable after the expiration of 10 years from the date of its grant or such shorter period specified in the Option Agreement.
(b) Exercise Price. The exercise or strike price of each Option will be not less than 100% of the Fair Market Value of the Shares subject to the Option on the date the Award is granted. Notwithstanding the foregoing, an Option may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Shares subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option pursuant to a Company Transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code.
(c) Consideration. The purchase price of Shares acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows:
(i) by cash, check, bank draft or money order payable to the Company;
(ii) by delivery to the Company (either by actual delivery or attestation) of Shares;
(iii) by a net exercise arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company will accept a cash or other payment from the Optionholder to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole Shares to be issued. Shares will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) Shares issuable upon exercise are used
to pay the exercise price pursuant to the net exercise, (B) Shares are delivered to the Optionholder as a result of such exercise, and (C) Shares are withheld to satisfy tax withholding obligations;
(iv) according to a deferred payment or similar arrangement with the Optionholder; provided, however, that interest will compound at least annually and will be charged at the minimum rate of interest necessary to avoid (A) the imputation of interest income to the Company and compensation income to the Optionholder under any applicable provisions of the Code, and (B) the classification of the Option as a liability for financial accounting purposes; or
(v) in any other form of legal consideration that may be acceptable to the Board and is specified in the applicable Option Agreement.
(d) Transferability. The Board may, in its sole discretion, impose such limitations on the transferability of Options as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options will apply:
(i) Restrictions on Transfer. An Option will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below) and will be exercisable during the lifetime of the Optionholder only by the Optionholder. The Board may permit transfer of the Option in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, an Option may not be transferred for consideration.
(ii) Domestic Relations Orders. Subject to the approval of the Board or a duly authorized Officer, an Option may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument. (iii) Beneficiary Designation. Subject to the approval of the Board or a duly authorized Officer, an Optionholder may, by delivering written notice to the Company, in a form approved by the Company (or the designated broker), designate a third party who, upon the death of the Optionholder, will thereafter be entitled to exercise the Option and receive the Shares or other consideration resulting from such exercise. In the absence of such a designation, the executor or administrator of the Optionholders estate will be entitled to exercise the Option and receive the Shares or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.
(e) Vesting Generally. The total number of Shares subject to an Option may vest and therefore become exercisable in periodic installments that may or may not be equal. The Option may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of performance goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 5(e) are subject to any Option provisions governing the minimum number of Shares as to which an Option may be exercised.
(f) Termination of Continuous Service. Except as otherwise provided in the applicable Option Agreement or other agreement between the Optionholder and the Company, if an Optionholders Continuous Service terminates (other than for Cause and other than upon the Optionholders death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date three months following the termination of the Optionholders Continuous Service (or such longer or shorter period specified in the applicable Option Agreement, which period will not be less than 30 days if necessary to comply with applicable laws unless such termination is for Cause) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the applicable time frame, the Option will terminate.
(g) Extension of Termination Date. Except as otherwise provided in the applicable Option Agreement or other agreement between the Optionholder and the Company, if the exercise of an Option following the termination of the Optionholders Continuous Service (other than for Cause and other than upon the Optionholders death or Disability) would be prohibited at any time solely because the issuance of Shares would violate the registration requirements under the Securities Act, then the Option will terminate on the earlier of (i) the expiration of a total period of three months (that need not be consecutive) after the termination of the Optionholders Continuous Service during which the exercise of the Option would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option as set forth in the applicable Option Agreement. In addition, unless otherwise provided in an Optionholders Option Agreement, if the sale of any Shares received upon exercise of an Option following the termination of the Optionholders Continuous Service (other than for Cause) would violate the Companys insider trading policy, then the Option will terminate on the earlier of (i) the expiration of a period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Optionholders Continuous Service during which the sale of Shares received upon exercise of the Option would not be in violation of the Companys insider trading policy, or (ii) the expiration of the term of the Option as set forth in the applicable Option Agreement.
(h) Disability of Optionholder. Except as otherwise provided in the applicable Option Agreement or other agreement between the Optionholder and the Company, if an Optionholders Continuous Service terminates as a result of the Optionholders Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was
entitled to exercise such Option as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date 12 months following such termination of Continuous Service (or such longer or shorter period specified in the Option Agreement, which period will not be less than 6 months if necessary to comply with applicable laws), and (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the applicable time frame, the Option will terminate.
(i) Death of Optionholder. Except as otherwise provided in the applicable Option Agreement or other agreement between the Optionholder and the Company, if (i) an Optionholders Continuous Service terminates as a result of the Optionholders death, or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement for exercisability after the termination of the Optionholders Continuous Service (for a reason other than death), then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholders estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholders death, but only within the period ending on the earlier of (i) the date 18 months following the date of death (or such longer or shorter period specified in the Option Agreement, which period will not be less than 6 months if necessary to comply with applicable laws), and (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, after the Optionholders death, the Option is not exercised within the applicable time frame, the Option will terminate.
(j) Termination for Cause. Except as explicitly provided otherwise in an Optionholders Option Agreement, if an Optionholders Continuous Service is terminated for Cause, the Option will terminate immediately upon such Optionholders termination of Continuous Service, and the Optionholder will be prohibited from exercising his or her Option from and after the time of such termination of Continuous Service.
(k) Non-Exempt Employees. If an Option is granted to an Employee who is a nonexempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option will not be first exercisable for any Shares until at least six months following the date of grant of the Option (although the Option may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, the vested portion of any Options may be exercised earlier than six months following the date of grant (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Company Transaction in which such Option is not assumed, continued or substituted, (iii) upon a Change in Control, or (iv) upon Optionholders retirement (as such term may be defined in the Optionholders Option Agreement, in another agreement between the Optionholder and the Company, or, if no such definition is provided for, in accordance with the Companys then current employment policies and guidelines). The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to
ensure that any income derived by a non-exempt Employee in connection with the exercise, vesting or issuance of any Shares under any other Award will be exempt from the employees regular rate of pay, the provisions of this Section 5(k) will apply to all Awards and are hereby incorporated by reference into such Award Agreements.
(l) Early Exercise of Options. An Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholders Continuous Service terminates to exercise the Option as to any part or all of the Shares subject to the Option prior to the full vesting of the Option. Subject to the Repurchase Limitation in Section 9(k), any unvested Shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. Provided that the Repurchase Limitation in Section 9(k) is not violated, the Company will not be required to exercise its repurchase right until at least six months (or such longer or shorter period of time required to avoid classification of the Option as a liability for financial accounting purposes) have elapsed following exercise of the Option unless the Board specifically provides otherwise in the Option Agreement.
(m) Right of Repurchase. Subject to the Repurchase Limitation in Section 9(k), the Option may include a provision whereby the Company may elect to repurchase all or any part of the vested Shares acquired by the Optionholder pursuant to the exercise of the Option.
(n) Right of First Refusal. The Option may include a provision whereby the Company may elect to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the Shares received upon the exercise of the Option. Such right of first refusal will be subject to the Repurchase Limitation in Section 9(k). Except as expressly provided in this Section 5(n) or in the Option Agreement, such right of first refusal will otherwise comply with any applicable provisions of the Stockholder Documents.
6. RESERVED.
7. RESTRICTED SHARE AWARD TERMS.
Each Restricted Share Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. At the Boards election, Shares may be (i) held in book entry form subject to the Companys instructions until any restrictions relating to the Restricted Share Award lapse; or (ii) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Share Award Agreements may change from time to time, and the terms and conditions of separate Restricted Share Award Agreements need not be identical. Each Restricted Share Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. A Restricted Share Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting. Subject to the Repurchase Limitation in Section 9(k), Shares awarded under the Restricted Share Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participants Continuous Service. If a Participants Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right, any or all of the Shares held by the Participant as of the date of termination of Continuous Service under the terms of the Restricted Share Award Agreement.
(iv) Transferability. Rights to acquire Shares under the Restricted Share Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Share Award Agreement, as the Board will determine in its sole discretion, so long as Shares awarded under the Restricted Share Award Agreement remain subject to the terms of the Restricted Share Award Agreement.
(v) Right of First Refusal. The Restricted Share Award may include a provision whereby the Company may elect to exercise a right of first refusal following receipt of notice from the Participant of the intent to transfer all or any part of the Shares received pursuant to the Restricted Share Award Agreement. Except as expressly provided in this Section 7(iv), or in the Restricted Share Award Agreement, such right of first refusal will otherwise comply with any applicable provisions of the Stockholder Documents.
8. COVENANTS OF THE COMPANY.
(a) Availability of Shares. The Company will keep available at all times the number of Shares reasonably required to satisfy then-outstanding Awards.
(b) Securities Law Compliance. The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Awards and to issue Shares upon exercise of the Options; provided, however, that this undertaking will not require the Company to register under the Securities Act the Plan, any Award or any Shares issued or issuable pursuant to any such Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems
necessary for the lawful issuance of Shares under the Plan, the Company will be relieved from any liability for failure to issue Shares upon exercise of such Options or vesting of such Profits Interest unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of Shares pursuant to the Award if such grant or issuance would be in violation of any applicable securities law.
(c) No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Optionholder to advise such holder as to the time or manner of exercising such Option. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Option or a possible period in which the Option may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.
9. MISCELLANEOUS.
(a) Use of Proceeds from Sales of Shares. Proceeds from the sale of Shares pursuant to Awards will constitute general funds of the Company.
(b) Company Action Constituting Grant of Awards. Company action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such company action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. If the company records (e.g., Board consents, resolutions or minutes) documenting the company action approving the Award contains terms (e.g., exercise price, vesting schedule or number of Shares) that are inconsistent with those in the Award Agreement as a result of a clerical error in papering the Award Agreement, the company records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement.
(c) Shareholder Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Shares subject to such Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of Shares under, the Award pursuant to its terms, and (ii) the issuance of the Shares subject to such Award has been entered into the books and records of the Company. A Participant to whom a Share is issued in accordance with the Plan will have such rights with respect to such Share as are provided in the applicable Stockholder Documents.
(d) No Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant or Other Service Provider pursuant to the terms of such Consultants or Other Service Providers agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the LLC Agreement, and any applicable provisions of the law of the state in which the Company or the Affiliate is organized, as the case may be.
(e) Change in Time Commitment. If a Participants regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced for any reason (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee) after the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of Shares subject to any portion of such Award that are scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced.
(f) Investment Assurances; Execution of Stockholder Documents. The Company may require a Participant, as a condition of exercising or acquiring Shares under any Award, to (i) give written assurances satisfactory to the Company as to the Participants knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; (ii) give written assurances satisfactory to the Company stating that the Participant is acquiring Shares subject to the Award for the Participants own account and not with any present intention of selling or otherwise distributing the Shares; and (iii) execute any applicable Stockholder Documents. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the Shares upon the exercise or acquisition of Shares under the Award has been registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on certificates issued under the Plan (if any) as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Shares.
(g) Withholding Obligations. Unless prohibited by the terms of an Award Agreement, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to an Award by any of the following means (in addition to the Companys right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) requiring the Participant to tender a cash payment; (ii) withholding Shares from the Shares issued or otherwise issuable to the Participant in connection with the Award; provided, however, that no Shares are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Award as a liability for
financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Award Agreement.
(h) Electronic Delivery. Any reference herein to a written agreement or document will include any agreement or document delivered electronically or posted on the Companys intranet (or other shared electronic medium controlled by the Company to which the Participant has access).
(i) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Shares or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participants termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.
(j) Compliance with Section 409A. To the extent that the Board determines that any Award granted hereunder is subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and Award Agreements will be interpreted in accordance with Section 409A of the Code.
(k) Repurchase Limitation. The terms of any repurchase right will be specified in the Award Agreement. The repurchase price for vested Shares will be the Fair Market Value of the Shares on the date of repurchase. The repurchase price for unvested Shares will be the lower of (i) the Fair Market Value of the Shares on the date of repurchase or (ii) the original purchase price paid. However, the Company will not exercise its repurchase right until at least six months (or such longer or shorter period of time as may be necessary to avoid classification of the Award as a liability for financial accounting purposes) have elapsed following delivery of Shares subject to the Award, unless otherwise specifically provided by the Board.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; OTHER COMPANY EVENTS.
(a) Capitalization Adjustments. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), and (ii) the class(es) and number of securities and price per Share subject to outstanding Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.
(b) Dissolution or Liquidation. Except as otherwise provided in the Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Awards (other than Awards consisting of vested and outstanding Shares not subject to a forfeiture condition or the Companys right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the Shares subject to the Companys repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Award is providing Continuous Service, provided, however, that the Board may, in its sole discretion, cause some or all Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c) Company Transaction. The following provisions will apply to Awards in the event of a Company Transaction unless otherwise provided in the instrument evidencing the Award or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of an Award. In the event of a Company Transaction, then, notwithstanding any other provision of the Plan, the Board may take one or more of the following actions with respect to Awards, contingent upon the closing or completion of the Company Transaction:
(i) arrange for the surviving Entity or acquiring Entity (or the surviving or acquiring Entitys parent company) to assume or continue the Award or to substitute a similar award for the Award (including, but not limited to, an award to acquire the same consideration paid to the Companys Stockholders of the Company pursuant to the Company Transaction);
(ii) arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Shares issued pursuant to the Award to the surviving Entity or acquiring Entity (or the surviving or acquiring Entitys parent company);
(iii) accelerate the vesting, in whole or in part, of the Award (and, if applicable, the time at which the Award may be exercised) to a date prior to the effective time of such Company Transaction as the Board may determine (or, if the Board does not determine such a date, to the date that is five days prior to the effective date of the Company Transaction), with such Award terminating if not exercised (if applicable) at or prior to the effective time of the Company Transaction; provided, however, that the Board may require Participants to complete and deliver to the Company a notice of exercise before the effective date of a Company Transaction, which exercise is contingent upon the effectiveness of such Company Transaction;
(iv) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Award;
(v) cancel or arrange for the cancellation of the Award, to the extent not vested or not exercised prior to the effective time of the Company Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and
(vi) make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant would have received upon the exercise of the Award immediately prior to the effective time of the Company Transaction, over (B) any exercise price payable by such holder in connection with such exercise. For clarity, this payment may be $0 if the value of the property is equal to or less than the exercise price. Payments under this provision may be delayed to the same extent that payment of consideration to the holders of the Companys Shares in connection with the Company Transaction is delayed as a result of escrows, earn outs, holdbacks or any other contingencies. The Board need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of an Award.
(d) Change in Control. An Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided and defined in the Award Agreement or grant notice for such Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless terminated sooner by the Board, the Plan will automatically terminate on the day before the 10th anniversary of the earlier of (i) the date the Plan is adopted by the Board, or (ii) the date the Plan is approved by the Companys Stockholders. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan will not impair rights and obligations under any Award granted while the Plan is in effect except with the written consent of the affected Participant or as otherwise permitted in the Plan.
12. EFFECTIVE DATE OF PLAN.
This Plan will become effective on the Effective Date.
13. CHOICE OF LAW.
The law of the State of California will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that states conflict of laws rules.
14. DEFINITIONS. As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
(a) Affiliate means, at the time of determination, any parent or majority-owned subsidiary of the Company, as such terms are defined in Rule 405. The Board will have the authority to determine the time or times at which parent or majority-owned subsidiary status is determined within the foregoing definition.
(b) Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award grant. Each Award Agreement will be subject to the terms and conditions of the Plan.
(c) Award means any right to receive Shares granted under the Plan, including an Option or a Profits Interest.
(d) Board means the Board of Directors of the Company.
(e) Capitalization Adjustment means any change that is made in, or other events that occur with respect to, the Shares subject to the Plan or subject to any Award after the Effective Date without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, incorporation, change in state of organization, distribution (whether in property or cash), equity split, reverse equity split, liquidating distribution, combination of Shares, exchange of Shares, change in form of organization or structure, or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(f) Cause will have the meaning ascribed to such term in any written agreement between the Participant and the Company defining such term and, in the absence of such agreement, such term means, with respect to a Participant, the occurrence of any of the following events: (i) such Participants commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such Participants attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participants intentional, material violation of any contract or agreement between the Participant and the Company or of any statutory duty owed to the Company; (iv) such Participants unauthorized use or disclosure
of the Companys confidential information or trade secrets; or (v) such Participants gross misconduct. The determination that a termination of the Participants Continuous Service is either for Cause or without Cause will be made by the Company, in its sole discretion. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Awards held by such Participant will have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
(g) Change in Control means the occurrence in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Companys securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (C) solely because the level of Ownership held by any Exchange Act Person (the Subject Person) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of Shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such Share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the Companys Stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more 50% of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;
(iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than 50% of the combined voting power of the voting securities of which are Owned by Companys Stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or
(iv) individuals who, on the date the Plan is adopted by the Board, are Companys Stockholders of the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Companys Stockholders of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the Companys Stockholders of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing definition or any other provision of this Plan, (A) the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, and (B) the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply.
To the extent required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulations Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). The Board may, in its sole discretion and without a Participants consent, amend the definition of Change in Control to conform to the definition of Change in Control under Section 409A of the Code, and the regulations thereunder.
(h) Code means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(i) Committee means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(j) Company Transaction means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale, lease or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii) a sale or other disposition of at least 90% of the outstanding securities of the Company;
(iii) a merger, consolidation, or similar transaction following which the Company is not the surviving Entity;
(iv) a merger, consolidation or similar transaction following which the Company is the surviving Entity but the Shares outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise. To the extent required for compliance with Section 409A of the Code, in no event will an event be deemed a Company Transaction if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder).
(k) Company means Avidity Biosciences, Inc., a Delaware corporation.
(l) Consultant means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors or directors of an Affiliate and is compensated for such services. However, the term Consultant will not include Companys Stockholders, and service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a Consultant for purposes of the Plan.
(m) Continuous Service means that the Participants service with the Company or an Affiliate, whether as an Employee, Consultant or Director, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the Entity for which the Participant renders such service, provided that there is no interruption or termination of the Participants service with the Company or an Affiliate, will not terminate a Participants Continuous Service; provided, however, that if the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board in its sole discretion, such Participants Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to
a Director will not constitute an interruption of Continuous Service. To the extent permitted by law, the Board or an officer of the Company designated by the Board, in that partys sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by that party, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent as may be provided in the Companys leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.
(n) Director means a member of the Board.
(o) Disability means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(p) Effective Date means the effective date of this Plan, which is the earlier of (i) the date that this Plan is first approved by the Companys Stockholders, and (ii) the date this Plan is adopted by the Board.
(q) Employee means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an Employee for purposes of the Plan.
(r) Entity means a corporation, partnership, limited liability company or other entity.
(s) Exchange Act Person means any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the Companys Stockholders of the Company in substantially the same proportions as their Ownership of securities of the Company; or (v) any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities.
(t) Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(u) Fair Market Value means, as of any date, the value of the Shares determined reasonably and in good faith by the Board.
(v) Officer means any person designated by the Company as an officer.
(w) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.
(x) Option means an option to purchase Shares granted pursuant to the Plan.
(y) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(z) Other Service Provider means any provider of services to the Company or an Affiliate other than an Employee, Director or Consultant. Other Service Providers will include, without limitation, a Shareholder who is providing services to the Company either in such Shareholders capacity as a Shareholder or in some other capacity; a director of the Company or an Affiliate as such term may be defined in the applicable governing documents of such Entity; or a partner of an Affiliate organized as a partnership if such partner is providing services to the Affiliate either in such partners capacity as a partner, or in some other capacity.
(aa) Own, Owned, Owner, Ownership A person or Entity will be deemed to Own, to have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(bb) Participant means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.
(cc) Plan means this Amended and Restated Avidity Biosciences, Inc. 2013 Equity Incentive Plan.
(dd) Rule 405 means Rule 405 promulgated under the Securities Act.
(ee) Rule 701 means Rule 701 promulgated under the Securities Act.
(ff) Securities Act means the Securities Act of 1933, as amended.
(gg) Share means a Share of Common stock of the Company, par value $0.0001.
(hh) Stockholder Documents means the Companys bylaws any applicable shareholders agreement, investor rights agreement, voting agreement, drag-along agreement, right of first refusal and co-sale agreement or similar agreement to which the Company and/or the holders of its capital securities or options may be a party that may be in effect from time to time (each, as amended or modified from time-to-time).
(ii) Subsidiary means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.
AVIDITY BIOSCIENCES, INC.
OPTION GRANT NOTICE
(AMENDED AND RESTATED 2013 EQUITY INCENTIVE PLAN)
Avidity Biosciences, Inc. (the Company), pursuant to its Amended and Restated 2013 Equity Incentive Plan (the Plan), hereby grants to Optionholder an option to purchase the number of Shares set forth below. This option is subject to all of the terms and conditions as set forth in this notice, in the Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined in this notice but defined in the Plan or the Option Agreement will have the same definitions as in the Plan or the Option Agreement. If there is any conflict between the terms in this notice and the Plan, the terms of the Plan will control.
Optionholder: | ||
Date of Grant: | ||
Vesting Commencement Date: | ||
Number of Shares Subject to Option: | ||
Exercise Price (Per Shares): | ||
Total Exercise Price: | ||
Expiration Date: |
Exercise Schedule: | ☐ Same as Vesting Schedule ☐ Early Exercise Permitted | |
Vesting Schedule: | [To be specified in individual agreements] | |
Payment: | By one or a combination of the following items (described in the Option Agreement):
☐ Cash, check, bank draft or money order payable to the Company ☐ A net exercise arrangement (subject to the Companys consent at the time of exercise) |
Additional Terms/Acknowledgements: By accepting this option, Optionholder consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. Optionholder acknowledges receipt of, and understands and agrees to, this Option Grant Notice, the Option Agreement and the Plan. Optionholder acknowledges and agrees that this Option Grant Notice and the Option Agreement may not be modified, amended or revised except as provided in a writing signed by the Optionholder and a duly authorized officer of the Company or as otherwise provided in the Plan. Optionholder further acknowledges that as of the Date of Grant, this Option Grant Notice, the Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding this option award and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options previously granted and delivered to Optionholder, and (ii) the following agreements only: the Companys bylaws any applicable stockholders agreement, investor rights agreement, voting agreement, drag-along agreement, right of first refusal and co-sale agreement or similar agreement to which the Company and/or the holders of its capital securities or options may be a party that may be in effect from time to time (each, as amended or modified from time-to-time).
AVIDITY BIOSCIENCES, INC. | OPTIONHOLDER: | |||||||
By: | ||||||||
Signature | Signature | |||||||
Title: | Date: | |||||||
Date: | ||||||||
ATTACHMENTS: Option Agreement, 2013 Equity Incentive Plan and Notice of Exercise |
AVIDITY BIOSCIENCES, INC.
AMENDED AND RESTATED 2013 EQUITY INCENTIVE PLAN
OPTION AGREEMENT
Pursuant to your Option Grant Notice (Grant Notice) and this Option Agreement, Avidity Biosciences, Inc. (the Company) has granted you an option under its Amended and Restated 2013 Equity Incentive Plan (the Plan) to purchase the Shares indicated in your Grant Notice at the exercise price indicated in your Grant Notice. The option is granted to you effective as of the date of grant set forth in the Grant Notice (the Date of Grant). If there is any conflict between the terms in this Option Agreement and the Plan, the terms of the Plan will control. Capitalized terms not explicitly defined in this Option Agreement or in the Grant Notice but defined in the Plan will have the same definitions as in the Plan. This option is not intended to be an incentive stock option within the meaning of Section 422 of the Code.
The details of your option, in addition to those set forth in the Grant Notice and the Plan, are as follows:
1. VESTING. Your option will vest as provided in your Grant Notice. Vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of Shares subject to your option and your exercise price per Shares in your Grant Notice will be adjusted for Capitalization Adjustments.
3. EXERCISE RESTRICTION FOR NON-EXEMPT EMPLOYEES. If you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended (that is, a Non-Exempt Employee), and except as otherwise provided in the Plan, you may not exercise your option until you have completed at least six months of Continuous Service measured from the Date of Grant, even if you have already been an employee for more than six months. Consistent with the provisions of the Worker Economic Opportunity Act, you may exercise your option as to any vested portion prior to such six month anniversary in the case of (i) your death or disability, (ii) a Company Transaction in which your option is not assumed, continued, or substituted, (iii) a Change in Control or (iv) your termination of Continuous Service on your retirement (as defined in the Companys benefit plans).
4. EXERCISE PRIOR TO VESTING (EARLY EXERCISE). If permitted in your Grant Notice (that is, the Exercise Schedule indicates Early Exercise Permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the unvested portion of your option; provided, however, that:
(a) a partial exercise of your option will be deemed to cover first vested Shares and then the earliest vesting installment of unvested Shares;
(b) any Shares so purchased from installments that have not vested as of the date of exercise will be subject to the purchase option in favor of the Company as described in the Companys form of Early Exercise Shares Purchase Agreement; and
(c) you will enter into the Companys form of Early Exercise Shares Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred.
5. METHOD OF PAYMENT. You must pay the full amount of the exercise price for the Shares you wish to purchase. You may pay the exercise price in cash or by check, bank draft or money order payable to the Company or in any other manner permitted by your Grant Notice, which may include one or more of the following:
(a) By a net exercise arrangement pursuant to which the Company will reduce the number of Shares issued upon exercise of your option by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price. You must pay any remaining balance of the aggregate exercise price not satisfied by the net exercise in cash or other permitted form of payment. Shares will no longer be outstanding under your option and will not be exercisable thereafter if those Shares (i) are used to pay the exercise price pursuant to the net exercise, (ii) are delivered to you as a result of such exercise, or (iii) are withheld to satisfy your tax withholding obligations.
6. WHOLE SHARES. You may exercise your option only for whole Shares.
7. SECURITIES LAW COMPLIANCE. In no event may you exercise your option unless the Shares issuable upon your exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the Shares would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with all other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that your exercise would not be in material compliance with such laws and regulations (including any restrictions on exercise required for compliance with Treas. Reg. 1.401(k)-1(d)(3), if applicable).
8. TERM. You may not exercise your option before the Date of Grant or after the expiration of the options term. The term of your option expires, subject to the provisions in the Plan, upon the earliest of the following:
(a) immediately upon the termination of your Continuous Service for Cause;
(b) three months after the termination of your Continuous Service for any reason other than Cause, your Disability or your death (except as otherwise provided in Section 8(d) below); provided, however, that if during any part of such three month period your option is not exercisable solely because of the condition set forth in the section above relating to Securities Law Compliance, your option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three months after the termination of
your Continuous Service; provided further, that if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six months after the Date of Grant, and (iii) a portion of your option has vested at the time of your Continuous Service termination, your option will not expire until the earlier of (x) the later of (A) the date that is seven months after the Date of Grant, and (B) the date that is three months after the termination of your Continuous Service, and (y) the Expiration Date;
(c) 12 months after the termination of your Continuous Service due to your Disability (except as otherwise provided in Section 8(d) below);
(d) 18 months after your death if you die either during your Continuous Service or within three months after your Continuous Service terminates for any reason other than Cause;
(e) the Expiration Date indicated in your Grant Notice; or
(f) the day before the 10th anniversary of the Date of Grant.
9. EXERCISE.
(a) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by (i) delivering a Notice of Exercise (in a form designated by the Company) or completing such other documents and/or procedures designated by the Company for exercise, and (ii) paying the exercise price and any applicable withholding taxes to the Companys Secretary, stock plan administrator or to such other person as the Company may designate, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of your option, (ii) the lapse of any substantial risk of forfeiture to which the Shares are subject at the time of exercise, or (iii) the disposition of Shares acquired upon such exercise.
(c) By exercising your option you agree that you will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company held by you, for a period of 180 days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as the underwriters or the Company will request to facilitate with FINRA Rule 2241 or any successor or similar rule or regulation (the Lock-Up Period); provided, however, that nothing contained in this section will prevent the exercise of a reacquisition or repurchase option, if any, in favor of the Company during the Lock-Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are
consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your Shares until the end of such period. You also agree that any transferee of any Shares held by you will be bound by this Section 9(c). The underwriters of the Companys securities are intended third party beneficiaries of this Section 9(c) and will have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
10. TRANSFERABILITY. Except as otherwise provided in this Section 10, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.
(a) Certain Trusts. Upon receiving written permission from the Board or its duly authorized designee, you may transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable state law) while the option is held in the trust. You and the trustee must enter into transfer and other agreements required by the Company.
(b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your option pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this option with the Company prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement.
(c) Beneficiary Designation. Upon receiving written permission from the Board or its duly authorized designee, you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by the Company to handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this option and receive the Shares or other consideration resulting from such exercise. In the absence of such a designation, your executor or administrator of your estate will be entitled to exercise this option and receive, on behalf of your estate, the Shares or other consideration resulting from such exercise.
11. RIGHT OF FIRST REFUSAL; TRANSFER RESTRICTIONS ON SHARES. Shares that you acquire upon exercise of your option are subject to any right of first refusal or other transfer restrictions that may be described in the Stockholder Documents in effect at such time the Company elects to exercise its right. The Companys right of first refusal will expire on the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on a national securities exchange or quotation system.
12. RIGHT OF REPURCHASE. To the extent provided in the Stockholder Documents in effect at such time the Company elects to exercise its right, the Company will have the right to repurchase all or any part of the Shares you acquire pursuant to the exercise of your option.
13. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option will be deemed to create in any way whatsoever any obligation on your part to continue in the employ or service of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment or service. In addition, nothing in your option will obligate the Company or an Affiliate, their respective owners, managers, directors, officers or employees to continue any relationship that you might have as a manager, director or consultant for the Company or an Affiliate.
14. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, and at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.
(b) Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested Shares otherwise issuable to you upon the exercise of your option a number of whole Shares having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid classification of your option as a liability for financial accounting purposes). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, Shares withholding pursuant to the preceding sentence will not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of Shares acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, Shares will be withheld solely from fully vested Shares determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such Shares withholding procedure will be your sole responsibility.
(c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company will have no obligation to issue a certificate for, or otherwise evidence the issuance to you of, such Shares or release such Shares from any escrow provided for herein, if applicable, unless such obligations are satisfied.
15. TAX CONSEQUENCES. You hereby agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes your tax liabilities. You will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from your option or your other compensation. In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the exercise price per Shares specified in the Grant Notice is at least equal to the fair market value per Shares on the Date of Grant and there is no other impermissible deferral of compensation associated with the option. Because the Shares are not traded on an established securities market, the Fair Market Value is determined by the Board, perhaps in consultation with an independent valuation firm retained by the Company. You acknowledge that there is no guarantee that the Internal Revenue Service will agree with the valuation as determined by the Board, and you will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates in the event that the Internal Revenue Service asserts that the valuation determined by the Board is less than the fair market value as subsequently determined by the Internal Revenue Service.
16. NOTICES. Any notices provided for in your option or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, 5 days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to your participation in the Plan and your option by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
17. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your option and those of the Plan, the provisions of the Plan will control.
NOTICE OF EXERCISE
Avidity Biosciences, Inc. | ||||
10975 N Torrey Pines, #150 | ||||
La Jolla, CA 92037 | Date of Exercise: |
Ladies and Gentlemen:
This constitutes notice to Avidity Biosciences, Inc. (the Company) under my option that I elect to purchase the below number of Shares of the Company (the Shares) for the price set forth below.
Option dated: |
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Number of Shares as to which option is exercised: |
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Shares to be issued in name of: |
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Total exercise price: |
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Cash payment delivered herewith: |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Companys 2013 Equity Incentive Plan, and (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option.
I hereby make the following certifications and representations with respect to the number of Shares listed above, which are being acquired by me for my own account upon exercise of the option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the Securities Act), and are deemed to constitute restricted securities under Rule 701 and Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least 90 days after the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that certificates (if any) representing any of the Shares subject to the provisions of the option will have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Companys Certificate of Incorporation, Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company, for a period of 180 days following the effective date of a registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company shall request to facilitate compliance with FINRA Rule 2241 any successor or similar rule or regulation). I further agree to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to my Shares subject to the foregoing restrictions until the end of such period.
Very truly yours, |
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Exhibit 10.9
GENERAL RELEASE OF CLAIMS
THIS GENERAL RELEASE OF CLAIMS (this Release) is entered into by and between Avidity Biosciences, Inc., a Delaware corporation (the Company), and Kent Hawryluk (Executive), as of the Effective Date (as defined below).
WHEREAS, the Company and Executive are parties to that certain Executive Employment Agreement dated as of January 1, 2013, as amended by that certain Amendment #1 to Executive Employment Agreement effective as of January 1, 2013 (as amended, the Employment Agreement), a copy of which is attached to this Release as Exhibit A and incorporated herein by reference, and that certain Companys Employee Proprietary Information and Inventions Agreement executed by Executive on January 14, 2014 (the PIIA);
WHEREAS, the parties agree that Executive is entitled to certain severance benefits under the Employment Agreement, subject to Executives execution and non-revocation of this Release; and
WHEREAS, the Company and Executive now wish to fully and finally resolve all matters between them.
NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive described in Section 2(d) below, the adequacy of which is hereby acknowledged by Executive, and which Executive acknowledges that he would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:
1. Effective Date; Termination of Employment.
(a) Effective Date. This Release shall become effective upon Executives execution of the Release (which shall occur no earlier than the Separation Date (as defined below)) and the expiration of the revocation period applicable under Section 3(d) without Executive having given notice of revocation. The Effective Date shall be the eighth (8th) day following Executives execution of this Release without revocation. Executive understands that Executive will not be given any severance benefits under this Release unless the Effective Date occurs on or before the date that is sixty (60) days following the Separation Date. In the event the Effective Date does not occur on or before the date that is sixty (60) days following the Separation Date, this Release shall be null and void.
(b) Termination of Employment. Executives employment by the Company will terminate effective as of December 19, 2019 (the Separation Date). Executive hereby resigns from his position as Chief Business Officer, and any and all other titles or positions he may hold with the Company (and any of its affiliates and subsidiaries) effective as of the Separation Date. Executive shall execute any additional documentation necessary to effectuate such resignations. Executives separation from service for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the Code), shall be the Separation Date. The Company will provide Executive with advanced copies of all press releases, articles, other publications (on the Companys website or otherwise) and/or internal announcements related to the Executives separation (Announcements). Executive shall promptly, but no longer than five (5) days, provide Company with any proposed edits to the Announcements, and the Company shall consider including such edits in the Announcements at Companys sole discretion. No future Announcements will be published or sent without Executives opportunity to review and propose edits pursuant to this Section 1(b). Executive agrees that the Announcements attached hereto as Exhibit C may be published or sent by Company any time on or after the date of Executives signature on this Release.
2. Compensation.
(a) Compensation Through Separation Date. On the Separation Date, the Company shall issue to Executive his final paycheck, reflecting (i) Executives fully earned but unpaid base salary, through the Separation Date at the rate then in effect, and (ii) all accrued, unused paid time off or vacation due Executive through the Separation Date. In addition, subject to Section 2(d)(iii)(C) below, all vesting of Executives unvested stock options previously granted to him by the Company shall cease and none of such unvested stock options shall be exercisable following the Separation Date. Subject to Sections 2(b) and (d) below, Executive acknowledges and agrees that with his final check, Executive received all monies, bonuses, commissions, expense reimbursements, paid time off or vacation, or other compensation he earned or was due during his employment by the Company and that were payable as of his Separation Date.
(b) Expense Reimbursements. The Company, within thirty (30) days after the Separation Date, will reimburse Executive for any and all reasonable and necessary business expenses incurred by Executive in connection with the performance of his job duties prior to the Separation Date, which expenses shall be submitted to the Company with supporting receipts and/or documentation no later than thirty (30) days after the Separation Date.
(c) Benefits. Subject to Section 2(d)(iii)(B) below, Executives entitlement to benefits from the Company, and eligibility to participate in the Companys benefit plans, shall cease on the Separation Date, except to the extent Executive elects to and is eligible to receive continued healthcare coverage pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), for himself and any covered dependents, in accordance with the provisions of COBRA.
(d) Severance. In exchange for Executives agreement to be bound by the terms of this Release, including, but not limited to, the release of claims in Section 3, and subject to the occurrence of the Effective Date as provided in Section 1(a), Executive shall be entitled to receive the following, which shall be the exclusive severance benefits to which Executive is entitled, unless Executive has failed to comply with the provisions of this Release, in which case the last sentence of Section 4 shall apply:
(i) A cash payment in the amount of $292,916.55, representing twelve (12) months base salary, payable in a lump sum on the sixtieth (60th) day following the Separation Date; plus
(ii) A cash payment in the amount of $87,874.97, representing Executives 2019 annual bonus, payable in a lump sum on the sixtieth (60th) day following the Separation Date; plus
(iii) For the period beginning on the Separation Date and ending on the date which is twelve (12) full months following the Separation Date (or, if earlier, (x) the date on which the applicable continuation period under COBRA expires, or (y) the date Executive becomes eligible to receive the equivalent or increased healthcare coverage from a subsequent employer) (such period, the COBRA Coverage Period), the Company shall either, at its option, (1) pay directly or (2) reimburse Executive, for the costs associated with continuation coverage pursuant to COBRA for Executive and his eligible dependents who were covered under the Companys health plans as of the Separation Date (provided that Executive shall be solely responsible for all matters relating to his continuation of coverage pursuant to COBRA, including, without limitation, his election of such coverage and his timely payment of premiums). If (x) any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover Executive under its group health plans under applicable law or the terms of such plans, then, in either case, the Company shall instead pay to Executive an amount equal to the monthly plan premium payment for
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Executive and his eligible dependents who were covered under the Companys health plans as of the Separation Date (calculated by reference to Executives premiums as of the Separation Date) as currently taxable compensation in substantially equal monthly installments over the COBRA Coverage Period (or the remaining portion thereof); plus
(iv) In the event a Company Transaction (as defined in the Employment Agreement) occurs within fifty-nine (59) days following the Separation Date, the additional benefits set forth below (and, for the avoidance of doubt, if a Company Transaction does not occur within such time period, Executive shall not be eligible to receive the additional severance benefits described in this clause (iv)):
(A) An additional cash payment in the amount of Executives full target bonus for the year in which the Company Transaction occurs, payable in a lump sum on the sixtieth (60th) day following the Separation Date; plus
(B) The vesting and/or exercisability of each of Executives outstanding stock options shall be automatically accelerated and deemed vested and exercisable as of the Separation Date. Except as modified above, Executives stock options shall continue to be governed by the terms and conditions of the stock option agreements and the Companys equity plan pursuant to which such stock options were granted.
The foregoing benefits shall be the exclusive benefits to which Executive is entitled in connection with his termination of employment, unless Executive has failed to comply with the provisions of this Release, in which case the last sentence of Section 4(a) shall apply.
(e) Return of the Companys Property. On the Separation Date, and prior to the payment of any amounts to Executive under Section 2(d) above, Executive shall immediately surrender to the Company all Company equipment, 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 equipment, lists, books and records, and other documents, are the property of the Company and shall be returned with all stored data and files intact.
3. General Release of Claims by Executive.
(a) Executive, on behalf of himself and his executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his employment with or service to the Company (collectively, the Company Releasees), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, Claims), which Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executives employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without
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limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq. (the ADEA); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq.
Notwithstanding the generality of the foregoing, Executive does not release the following:
(i) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;
(ii) Claims for workers compensation insurance benefits under the terms of any workers compensation insurance policy or fund of the Company;
(iii) Claims pursuant to the terms and conditions of the federal law known as COBRA;
(iv) Claims for indemnity and to be held harmless under the bylaws of the Company; as provided for by California law (including California Labor Code Section 2802) or another applicable and comparable state law, whichever is broader; or under any applicable insurance policy with respect to Executives liability as an employee, director or officer of the Company;
(v) Claims based on any right Executive may have to enforce the Companys executory obligations under this Release;
(vi) Executives right to bring to the attention of the Equal Employment Opportunity Commission or the California Department of Fair Employment and Housing claims or any other federal, state or local government agency of discrimination, harassment, retaliation or failure to accommodate, or from participating in an investigation or proceeding conducted by the Equal Employment Opportunity Commission or any other federal, state or local government agency; provided, however, that Executive does release his right to secure any damages for any such alleged treatment;
(vii) Executives right to communicate or cooperate with any government agency; and
(vii) Any other Claims that cannot be released as a matter of law.
Further, nothing in this Agreement alters Executives rights to any vested benefits, his rights related to his vested options or ownership, or his right to pursue benefits under any applicable benefit plan.
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(b) EXECUTIVE ACKNOWLEDGES THAT HE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.
(c) Executive acknowledges that this Release was presented to him on December 19, 2019, and that, prior to signing this Release, Executive was given at least twenty-one (21) days time in which to consider it. Executive further acknowledges that the Company has advised him that he is waiving his rights under the ADEA, and that Executive should consult with an attorney of his choice before signing this Release, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before the foregoing twenty-one (21) days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executives legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.
(d) Executive understands that after executing this Release, Executive has the right to revoke it within seven (7) days after his execution of it. Executive understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven (7) day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to John Wallen, General Counsel of the Company, at the Companys principal place of business, within the foregoing seven (7) day period.
(e) Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth (8th) day after his execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above.
4. Confirmation of Continuing Obligations.
(a) Executive hereby expressly reaffirms his obligations under the PIIA, a copy of which is attached to this Release as Exhibit B and incorporated herein by reference, and agrees that such obligations shall survive the Separation Date and any termination of his services to the Company. The Company shall be entitled to cease all severance payments to Executive in the event of his non-compliance with this Section 4.
(b) Executive agrees that during the period of employment with the Company and for twelve (12) months after the date Executives employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. The foregoing provision shall not be violated by (i) general advertising not targeted at employees, independent contractors or consultants of the Company or (ii) Executives ownership, for investment purposes only, of no more than 3% of the outstanding stock of any company listed on a national securities exchange, or actively traded in a national over-the-counter market.
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(c) Executive agrees that he shall not disparage or otherwise communicate negative statements or opinions about the Company, its board members, officers, employees, shareholders or agents; provided, however, that Executive shall not be prohibited from making such statements or opinions to his immediate family so long as such statements or opinions are not likely to be harmful to the Company, its board members, officers, employees, shareholders or agents or its or their businesses, business reputations, or personal reputations. The Company agrees that neither its board members nor officers shall disparage or otherwise communicate negative statements or opinions about Executive. Except as may be required by law, neither Executive, nor any member of Executives family, nor anyone else acting by, through, under or in concert with Executive will disclose to any individual or entity (other than Executives legal or tax advisors) the terms of this Release. Nothing in this Section 4(c) shall prohibit Executive from (i) testifying in any legal proceeding in which his testimony is compelled by law or court order and no breach of this provision shall occur due to any accurate, legally compelled testimony or (ii) communicating or cooperating with any government agency.
(d) Executive acknowledges that the Company has provided him with the following notice of immunity rights in compliance with the requirements of the Defend Trade Secrets Act: (i) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of Proprietary Information (as defined in the PIIA) that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, (ii) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of Proprietary Information that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal and (iii) if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the Proprietary Information to his attorney and use the Proprietary Information in the court proceeding, if Executive files any document containing the Proprietary Information under seal, and does not disclose the Proprietary Information, except pursuant to court order.
5. Indemnification. The Company shall indemnify Executive for all necessary expenditures or losses, including all reasonable costs and attorneys fees, incurred by Executive as a result of the discharge of his duties, or of his obedience to the directions of the Company, during his employment as provided in Section 2802 of the California Labor Code or comparable applicable state law, whichever is broader. To the extent any claim, action or proceeding is brought related to events that occurred during Executives employment with the Company, if the Company requires information or reasonable assistance from Executive to defend such claim, action or proceeding, the Company will pay or reimburse Executive for any reasonable out-of-pocket expenses incurred by Executive in doing so.
6. Arbitration. Any dispute, claim or controversy based on, arising out of or relating to Executives employment or this Release shall be settled by final and binding arbitration in San Diego, California, pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, before a single neutral arbitrator in accordance with the then-applicable rules (the Rules) of JAMS, Inc. (JAMS), and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. The Rules may be found online at www.jamsadr.org/rules-clauses and are available upon request from the Company. 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 JAMS in accordance with its Rules. The arbitrator will: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrators essential findings and conclusions and a statement of the award. Each party shall pay the fees of its or his own attorneys, the expenses of its or his witnesses and all other expenses connected with presenting its case; however, Executive 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. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, JAMS
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administrative fees, the fee of the arbitrator, and all other fees and costs, shall be borne by the Company. This Section 5 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 Release or relating to Executives employment; provided, however, that Executive shall retain the right to file administrative charges with or seek relief through any government agency of competent jurisdiction, and to participate in any government investigation, including but not limited to (i) claims for workers compensation, state disability insurance or unemployment insurance; (ii) claims for unpaid wages or waiting time penalties brought before the California Division of Labor Standards Enforcement; provided, however, that any appeal from an award or from denial of an award of wages and/or waiting time penalties shall be arbitrated pursuant to the terms of this Release; and (iii) claims for administrative relief from the United States Equal Employment Opportunity Commission and/or the California Department of Fair Employment and Housing (or any similar agency in any applicable jurisdiction other than California). This Release shall not limit either partys right to obtain any provisional remedy, including, without limitation, injunctive or similar relief, from any court of competent jurisdiction as may be necessary to protect their rights and interests pending the outcome of arbitration, 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 Executive and the Company expressly waive their right to a jury trial.
7. Miscellaneous.
(a) Assignment; Assumption by Successor. The rights of the Company under this Release may, without the consent of Executive, 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 Release 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 Release, 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 Release by operation of law or otherwise.
(c) Survival. The covenants, agreements, representations and warranties contained in or made in Sections 2, 3, 4, 5, 6 and 7 of this Release shall survive Executives termination of employment or any termination of this Release.
(d) Severability. In the event any provision of this Release is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the Parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.
(e) Interpretation; Construction. The headings set forth in this Release are for convenience only and shall not be used in interpreting this Release. This Release has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Release and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the
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interpretation of this Release. Either partys failure to enforce any provision of this Release shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Release.
(d) Governing Law and Venue. This Release is to be governed by and construed in accordance with the laws of the United States of America and 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 Section 5, 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.
(e) Entire Agreement; Modification. This Release and the PIIA set forth the entire understanding of the parties with respect to the subject matter hereof and supersede all existing agreements between them concerning such subject matter. The Employment Agreement shall be superseded entirely by this Release and the Employment Agreement shall be terminated and be of no further force or effect. This Release may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.
(f) Counterparts. This Release 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 Release.
(g) Withholding and other Deductions. All compensation payable to Executive 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.
(h) Section 409A.
(i) It is intended that all of the severance benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A of the Code.
(ii) To the extent applicable, this Release shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code. To the extent that any provision of the Release is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner that no payments payable under this Release shall be subject to an additional tax as defined in Section 409A(a)(1)(B) of the Code.
(iii) For purposes of Section 409A of the Code, Executives right to receive any installment payments pursuant to this Agreement will be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period will be within the sole discretion of the Company.
(iv) Any reimbursement of expenses or in-kind benefits payable under this Release 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 Executives taxable year following the taxable year in which Executive incurred
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the expenses. The amount of expenses reimbursed or in-kind benefits payable during any taxable year of Executives will not affect the amount eligible for reimbursement or in-kind benefits payable in any other taxable year of Executives, and Executives right to reimbursement for such amounts shall not be subject to liquidation or exchange for any other benefit.
(i) RIGHT TO ADVICE OF COUNSEL. EXECUTIVE ACKNOWLEDGES THAT HE HAS THE RIGHT, AND IS ENCOURAGED, TO CONSULT WITH HIS LAWYER; BY HIS SIGNATURE BELOW, EXECUTIVE ACKNOWLEDGES THAT HE HAS CONSULTED, OR HAS ELECTED NOT TO CONSULT, WITH HIS LAWYER CONCERNING THIS RELEASE.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties have executed this Release as of the dates set forth below.
AVIDITY BIOSCIENCES, INC. | ||||||||
Date: | 01/04/2020 | By: | /s/ Sarah Boyce | |||||
Name: | Sarah Boyce | |||||||
Title: | CEO | |||||||
EXECUTIVE | ||||||||
Date: | 01/06/2020 | /s/ Kent Hawryluk | ||||||
Kent Hawryluk |
[SIGNATURE PAGE TO GENERAL RELEASE OF CLAIMS]
EXHIBIT A
EMPLOYMENT AGREEMENT
AVIDITY NANOMEDICINES LLC
EXECUTIVE EMPLOYMENT AGREEMENT
FOR
KENT HAWRYLUK
This Executive Employment Agreement (the Agreement), made between Avidity NanoMedicines LLC (the Company) and Kent Hawryluk (the Executive) (collectively, the Parties), is effective as of January 1, 2013.
WHEREAS, the Company desires Executive to provide non-exclusive employment services to the Company, and wishes to provide Executive with certain compensation and benefits in return for such employment services; and
WHEREAS, Executive wishes to be employed by the Company and to provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
EMPLOYMENT BY THE COMPANY.
Position. Executive will serve as the Companys Chief Business Officer. During the term of Executives employment with the Company, Executive will devote Executives best efforts and a reasonable amount of Executives business time and attention to the business of the Company, except for reasonable periods of illness or other incapacities permitted by the Companys general employment policies.
1.2 Duties and Location. Executive will perform such duties as are required by the Companys Chief Executive Officer to whom Executive will report. Executives primary office location will be located in Indianapolis, Indiana. The Company reserves the right to reasonably require Executive to perform Executives duties at places other than Executives primary office location from time to time and to require reasonable business travel.
1.3 Policies and Procedures. The employment relationship between the Parties will be governed by the general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in conflict with the Companys general employment policies or practices, this Agreement will control.
COMPENSATION.
Initial Salary. For services to be rendered hereunder, Executive will be entitled to receive a base salary at the rate of $120,000 per year (the Initial Salary) less normal payroll withholdings. Executive will receive the full Initial Salary in cash in accordance with the Companys regular payroll schedule.
Bonus. Executive will be eligible for an annual discretionary bonus of up to 30% of Executives Base Salary (the Annual Bonus). Whether Executive receives an Annual Bonus for any given year, and the amount of any such Annual Bonus, will be determined by the Companys Board of Managers (Board) in its sole discretion based upon the Companys and Executives achievement of objectives and milestones to be determined on an annual basis by the Board. Executive must remain an active employee or consultant through the end of any given calendar year in order to earn an Annual Bonus for that year and any such bonus will be paid prior to March 15 of the year following the year in which such bonus was earned. Executive will not be eligible for, and will not earn, any Annual Bonus (including a prorated bonus) if Executives employment or consulting relationship with the Company terminates for any reason before the end of the calendar year.
Payment of Special Bonus. Executive will be eligible to receive a special bonus (the Special Bonus) payable upon the upon the closing of the Company Financing (as defined below) in the form of equity securities issued in the Company Financing calculated in accordance with this Section 2.3. Upon the closing of the Company Financing, the Company will issue to Executive equity securities in the Company in the same class and with the same rights and preferences as the equity securities issued pursuant to the Company Financing in an aggregate amount (based on the per share price of the equity securities issued in the Company Financing) equal to (a) $104,712, plus (b) an amount equal to $140,000 multiplied by x/365 (where x = the number of days between May 28, 2013 and the earlier to occur of (x) date of the closing of the Company Financing and (y) the effective date of any termination of Executives employment or consulting relationship with the Company prior to the date of the closing of the Company Financing). In the event that the Company has not closed a Company Financing prior to a Company Transaction (as defined below), at the closing of the Company Transaction, the Company will pay the Executive an amount in cash equal to the Special Bonus (provided, that for purposes of determining the portion of the Special Bonus described in clause (b) above, the term Company Financing shall be replaced with the term Company Transaction).
Post-Financing Salary. Upon the closing of the Company Financing, for services to be rendered hereunder, the Executives base salary will increase to $260,000 per year (the Base Salary) less normal payroll withholdings. Executive will receive the full Base Salary in cash in accordance with the Companys regular payroll schedule.
Payment of Base Salary and Annual Bonus. The Initial Salary, Base Salary, and Annual Bonus (if any) shall be paid to Executive by Insperity (a co-employer of Executive) or another professional employer organization and all amounts so paid for services rendered will satisfy the Companys obligations hereunder. The Company will indemnify Executive for any claims for federal, state or local taxing authorities that the Companys payments to Executive should have been subjected to additional taxes or withholdings.
STANDARD COMPANY BENEFITS. Executive shall be entitled to participate in all employee benefit programs for which Executive is eligible under the terms and conditions of the benefit plans that may be in effect from time to time and provided by the Company to its employees. The Company reserves the right to cancel or change the benefit plans or programs it offers to its employees at any time.
VACATION. Executive will be entitled to accrue and use paid vacation in accordance with the terms of the Companys vacation policy and practices, provided, however, that in no event will Executives vacation accrual rate be lower than 3 weeks per year.
EXPENSES AND INDEMNITY
EXPENSES. The Company will reimburse Executive for reasonable travel and lodging, including, without limitation, any required lodging expenses incurred in connection with travel by Executive to La Jolla, California, entertainment or other expenses incurred by Executive in furtherance or in connection with the performance of Executives duties hereunder, in accordance with the Companys expense reimbursement policy as in effect from time to time.
INDEMNITY. Executive will be indemnified by the Company to the fullest extent permitted by California, Indiana or Delaware law pursuant to an indemnity agreement entered into between the parties substantially in the form of Exhibit B.
TERMINATION OF EMPLOYMENT; SEVERANCE.
At-Will Employment. Executives employment relationship is at-will. Either Executive or the Company may terminate the employment relationship at any time, with or without Cause or advance notice.
Termination Without Cause; Resignation for Good Reason.
Not in Connection with a Company Transaction. In the event Executives employment with the Company is terminated by the Company without Cause (other than by reason of death or disability), or Executive resigns for Good Reason, then provided such termination or resignation constitutes a separation from service (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a Separation from Service), the Separation from Service occurs more than 59 days prior to the closing of a Company Transaction, and provided that Executive remains in compliance with the terms of this Agreement, the Company will provide Executive with a cash lump-sum payment in an amount equal to 12 months of Executives annual base salary at the rate in effect on the effective date of Executives Separation from Service, ignoring any decrease in base salary that forms the basis for Good Reason, payable on the 60th day following Executives Separation from Service, provided the Release (as discussed in Section 6) has become effective.
In Connection with a Company Transaction. In the event Executives employment with the Company is terminated by the Company without Cause (other than by reason of death or disability), or Executive resigns for Good Reason, then provided such termination or resignation constitutes a Separation from Service, the Separation from Service occurs within 59 days prior to, on or within 12 months following the closing of a Company Transaction, and provided that Executive remains in compliance with the terms of this Agreement, the Company will provide Executive with the following severance benefits:
A cash lump-sum payment in an amount equal to 12 months of Executives annual base salary at the rate in effect on the effective date of Executives Separation from Service, ignoring any decrease in base salary that forms the basis for Good Reason, less standard deductions and withholdings, payable on the 60th day following Executives Separation from Service, provided the Release (as discussed in Section 7) has become effective.
A cash lump-sum payment in an amount equal to the Executives full target bonus amount for services to be performed during the year in which the Company Transaction occurs, less standard deductions and withholdings, payable on the 60th day following Executives Separation from Service, provided the Release (as discussed in Section 7) has become effective.
Provided Executive timely elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company will pay the COBRA premiums to continue Executives coverage (including coverage for eligible dependents,
if applicable), subject to withholding if deemed necessary to comply with applicable laws, through the period (the COBRA Premium Period) starting on the Executives Separation from Service and ending on the earliest to occur of: (i) 12 months following Executives Separation from Service; (ii) the date Executive becomes eligible for group health insurance coverage through a new employer; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage for any reason. In the event Executive becomes covered under another employers group health plan or otherwise cease to be eligible for COBRA during the COBRA Premium Period, Executive must immediately notify the Company of such event.
One hundred percent of any Parent equity held by Executive will be deemed vested and exercisable (if applicable) as of Executives last day of employment.
Termination for Cause; Resignation Without Good Reason; Death or Disability. If Executive resigns without Good Reason, or the Company terminates Executives service for Cause, or upon Executives death or disability, then all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and Executive will not be entitled to any benefits under Section 6.2(a) or Section 6.2(b).
RELEASE OF CLAIMS. The receipt of any benefits under Section 6.2(a) or Section 6.2(b) will be subject to Executive providing a signed and irrevocable release of claims in the form attached hereto as Exhibit A (the Release), within 60 days following Executives Separation from Service.
SECTION 409A.
It is intended that all of the severance benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Code Section 409A.
A termination of employment will not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a separation from service within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a termination, termination of service or like terms will mean separation from service. If Executive is deemed on the date of termination to be a specified employee within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered deferred compensation under Code Section 409A payable on account of a separation from service, such payment or benefit will be made or provided at the date which is the earlier of (A) the expiration of the six-month period measured from the date of such separation from service of Executive, and (B) the date of Executives death, to the extent required under Code Section 409A. Upon the expiration of the foregoing delay period, all payments and benefits delayed pursuant to this Section 8.2 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) will be paid or reimbursed to Executive in a lump sum, and any remaining payments and benefits due under this Agreement will be paid or provided in accordance with the normal payment dates specified for them herein.
To the extent that reimbursements or other in-kind benefits under this Agreement constitute nonqualified deferred compensation for purposes of Code Section 409A, (A) all expenses or other reimbursements hereunder will be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive, (B) any right to reimbursement or in-kind benefits will not be subject to liquidation or exchange for another benefit, and (C) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year will in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.
For purposes of Code Section 409A, Executives right to receive any installment payments pursuant to this Agreement will be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period will be within the sole discretion of the Company. Notwithstanding any other provision of this Agreement to the contrary, in no event will any payment under this Agreement that constitutes nonqualified deferred compensation for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted by Code Section 409A.
DEFINITIONS.
Cause with respect to Executive means Executive has: (a) been convicted of or pled guilty or nolo contendere to a felony or any crime involving moral turpitude or dishonesty; (b) participated in a fraud or act of dishonesty against the Company; (c) materially breached any agreement between such Executive and the Company or any written policy of the Company; (d) engaged in conduct that demonstrates gross unfitness to serve; or (e) engaged in willful misconduct or (f) refused to comply with any lawful directive of the Company and, with respect to clauses (c) and (f), Executive has not cured such noncompliance or breach within 30 days of receipt the Companys written notice of such noncompliance or breach.
Code means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
Company Financing means the first issuance of equity securities by the Company in one transaction or a series of related transactions which is a bona fide financing transaction with proceeds to the Company equal to at least $5.0 million (excluding the conversion of any convertible debt).
Company Transaction means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:
a sale, lease or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its subsidiaries;
a sale or other disposition of at least 50% of the outstanding securities of the Company or of the outstanding securities of Parent;
a merger, consolidation, or similar transaction of the Company or Parent following which such entity is not the surviving entity;
a merger, consolidation or similar transaction of the Company or Parent following which such entity is the surviving entity but the units outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
Notwithstanding the foregoing, the term Company Transaction will not include (i) a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, or (ii) the acquisition of securities of the Company by an investor or any affiliate thereof that acquires the Companys securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities. In addition, to the
extent required for compliance with Section 409A of the Code, in no event will an event be deemed a Company Transaction if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder).
Good Reason will exist for resignation from employment with the Company if any of the following actions are taken by the Company without Executives prior written consent:
a material reduction in Executives base salary, unless pursuant to a salary reduction program applicable generally to the Companys similarly situated employees;
a material reduction in Executives duties (including responsibilities and/or authorities);
a material reduction in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, including a requirement that Executive report to an officer or employee instead of reporting directly to the Board or similar governing body;
relocation of Executives principal place of employment to a place that increases Executives one-way commute by more than 50 miles as compared to Executives then-current principal place of employment immediately prior to such relocation; or
any other action or inaction that constitutes a material breach by the Company of this Agreement or any agreement under which Executive provides services.
In order to resign for Good Reason, Executive must provide written notice to the Company within 60 days after the first occurrence of the event giving rise to Good Reason setting forth the basis for Executives resignation, allow the Company at least 30 days from receipt of such written notice to cure such event, and if such event is not reasonably cured within such period, Executive must resign from all positions Executive then holds with the Company not later than 90 days after the expiration of the cure period.
Parent means, an entity that is a majority equity holder of the Company, or any entity in a chain of entities in which each entity is a majority equity holder of another entity in the chain, ending with the Company. A majority equity holder is an equity holder owning more than 50% of the total fair market value and total voting power of the entity in question.
PROPRIETARY INFORMATION OBLIGATIONS.
Confidential Information Agreement. As a condition of employment, Executive will execute and abide by the Companys standard form of Proprietary Information and Invention Assignment Agreement (the Confidentiality Agreement) and Arbitration Agreement.
Third-Party Agreements and Information. Executive represents and warrants that Executives employment by the Company does not conflict with any prior employment or consulting agreement or other agreement with any third party, and that Executive will perform Executives duties to the Company without violating any such agreement. During Executives employment with the Company, Executive will use in the performance of Executives duties only information which is generally known and used by persons with training and experience comparable to Executives own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by Executive in the course of Executives work for the Company.
NO ADVERSE INTERESTS.
During the term of employment with the Company, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known to be a direct competitor of the Company, its business or prospects, financial or otherwise. This does not prohibit Executives continued involvement in any existing investments or ownership, for investment purposes only, of not more than 3% of the outstanding stock of any company listed on a national securities exchange, or actively traded in a national over-the-counter market.
NON-SOLICITATION. Executive agrees that during the period of employment with the Company and for 12 months after the date Executives employment is terminated for any reason, Executive will not, either directly or through others, solicit or encourage or attempt to solicit or encourage any employee, independent contractor, or consultant of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. The foregoing provision shall not be violated by (a) general advertising not targeted at employees, independent contractors or consultants of the Company or (b) Executives ownership, for investment purposes only, of not more than 3% of the outstanding stock of any company listed on a national securities exchange, or actively traded in a national over-the-counter market.
DISPUTE RESOLUTION. To ensure the timely and economical resolution of disputes that may arise in connection with Executives employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, Executives employment, or the termination of Executives employment, including but not limited to statutory claims, will be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in San Diego, California, conducted by JAMS, Inc. (JAMS) under the then applicable JAMS rules (which can be found at the following web address: http://www.jamsadr.com/rulesclauses). By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The Company acknowledges that Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator will: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrators essential findings and conclusions and a statement of the award. The arbitrator will be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law. The Company will pay all JAMS arbitration fees. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.
GENERAL PROVISIONS.
Notices. Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery or the next day after sending by overnight carrier, to the Company at its primary office location and to Executive at the address as listed on the Company payroll.
Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keeping with the intent of the parties.
Waiver. Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it will not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
Complete Agreement. This Agreement, together with the Confidentiality Agreement and Arbitration Agreement, constitutes the entire agreement between Executive and the Company with regard to this subject matter and is the complete, final, and exclusive embodiment of the Parties agreement with regard to this subject matter. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by a duly authorized officer of the Company.
Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
Headings. The headings of the paragraphs hereof are inserted for convenience only and will not be deemed to constitute a part hereof nor to affect the meaning thereof.
Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which will not be withheld unreasonably.
Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year first written above.
AVIDITY NANOMEDICINES LLC | ||
By: | /s/ Troy Wilson | |
Name: Troy Wilson | ||
Title: President and CEO | ||
EXECUTIVE | ||
/s/ P. Kent Hawryluk | ||
Name: P. Kent Hawryluk |
AMENDMENT #1 TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment #1 is made effective as of January 1, 2013 (the Amendment Effective Date) and amends that certain Executive Employment Agreement by and between Avidity NanoMedicines LLC, a Delaware limited liability company (the Company) and Kent Hawryluk (the Executive) dated January 1, 2013 (the Agreement).
WHEREAS, the Company and Executive desire to amend the Agreement to clarify and correct the provision with respect to the commencement date of Executives salary.
NOW THEREFORE, in consideration of the foregoing and the agreements below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1. | All terms not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. |
2. | Section 2.1 is hereby deleted and replaced in its entirety with the following: |
2.1 Initial Salary. For Services to be rendered hereunder, commencing on May 28, 2013 Executive will be entitled to receive a base salary at the rate of $120,000 per year (the Initial Salary) less normal payroll withholdings. Executive will receive the full Initial Salary in cash in accordance with the Companys regular payroll schedule.
3. | Except as specifically amended hereby, all terms of the Agreement remain in full force and effect. |
IN WITNESS WHEREOF, the undersigned agree to the terms and conditions of the Agreement as amended herein.
Avidity NanoMedicines LLC | Executive | |||||||
By: | /s/ Troy Wilson |
/s/ Kent Hawryluk | ||||||
Name: | Troy Wilson | Name: Kent Hawryluk | ||||||
Title: | President and Chief Executive Officer |
EXHIBIT B
AVIDITY NANOMEDICINES LLC
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by AVIDITY NANOMEDICINES LLC (the Company), and the compensation now and hereafter paid to me, I hereby agree as follows:
EXHIBIT A
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Companys equipment, supplies, facilities or trade secret information except for those inventions that either:
1. Relate at the time of conception or reduction to practice of the invention to the Companys business, or actual or demonstrably anticipated research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: /s/ P. Kent Hawryluk
Print Name: P. Kent Hawryluk
Date: 1/24/14
Witnessed By:
/s/ [Illegible]
EXHIBIT B
TO: AVIDITY NANOMEDICINES LLC
FROM: P. Kent Hawryluk
DATE: 1/24/14
SUBJECT: Previous Inventions
1. Except as listed in Section 2 below, the following is a complete list of all inventions or improvements relevant to the subject matter of my employment by AVIDITY NANOMEDICINES LLC (the Company) that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:
☒ | No inventions or improvements. |
☐ | See below: |
☐ | Additional sheets attached. |
2. Due to a prior confidentiality agreement, I cannot complete the disclosure under Section 1 above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which I owe to the following party(ies):
Invention or Improvement | Party(ies) | Relationship | ||||
1. | ||||||
2. | ||||||
3. |
☐ | Additional sheets attached. |
[***] Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
Exhibit 10.11
EXECUTION VERSION
RESEARCH COLLABORATION AND LICENSE AGREEMENT
between
ELI LILLY AND COMPANY
and
AVIDITY BIOSCIENCES, INC.
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1 |
DEFINITIONS | 1 | ||||
ARTICLE 2 |
GOVERNANCE AND JOINT RESEARCH COMMITTEE | 15 | ||||
2.1 |
Project Leader | 15 | ||||
2.2 |
Alliance Manager | 15 | ||||
2.3 |
Working Groups | 15 | ||||
2.4 |
Joint Research Committee | 15 | ||||
2.5 |
Function and Powers of the JRC | 15 | ||||
2.6 |
Meetings | 16 | ||||
2.7 |
Decisions | 16 | ||||
2.8 |
Authority | 17 | ||||
2.9 |
Discontinuation of JRC | 17 | ||||
ARTICLE 3 |
LICENSES; EXCLUSIVITY | 18 | ||||
3.1 |
License Grants | 18 | ||||
3.2 |
Sublicenses | 18 | ||||
3.3 |
Subcontracting | 18 | ||||
3.4 |
Collaboration Materials Transfer | 19 | ||||
3.5 |
Exclusivity | 19 | ||||
3.6 |
No Other Rights; Retained Rights | 21 | ||||
ARTICLE 4 |
RESEARCH ACTIVITIES | 21 | ||||
4.1 |
Overview | 21 | ||||
4.2 |
Collaboration Targets | 22 | ||||
4.3 |
Research Plans | 23 | ||||
4.4 |
Selection of Development Candidate | 24 | ||||
4.5 |
Records; Reports | 25 | ||||
4.6 |
Research Term Extension | 25 | ||||
4.7 |
Discontinued Targets | 25 | ||||
4.8 |
Diligence | 26 | ||||
4.9 |
Research Funding | 26 | ||||
4.10 |
Certain Standards Applicable to Work | 27 |
i
ARTICLE 5 |
DEVELOPMENT, MANUFACTURING, AND REGULATORY MATTERS | 28 | ||||
5.1 |
Development and Manufacturing Responsibilities | 28 | ||||
5.2 |
Diligence | 28 | ||||
5.3 |
Reports | 28 | ||||
5.4 |
Regulatory Responsibilities | 28 | ||||
5.5 |
Adverse Event Reporting; Additional Agreement | 28 | ||||
ARTICLE 6 |
COMMERCIALIZATION | 29 | ||||
6.1 |
General | 29 | ||||
6.2 |
Diligence | 29 | ||||
ARTICLE 7 |
FEES, ROYALTIES, & PAYMENTS | 29 | ||||
7.1 |
Upfront Payment | 29 | ||||
7.2 |
Milestone Payments | 29 | ||||
7.3 |
Royalties on Products | 31 | ||||
7.4 |
Convertible Note | 33 | ||||
7.5 |
Method of Payment; Currency Conversion | 33 | ||||
7.6 |
Records and Audits | 33 | ||||
7.7 |
Late Payments | 34 | ||||
7.8 |
Taxes | 34 | ||||
ARTICLE 8 |
INTELLECTUAL PROPERTY | 35 | ||||
8.1 |
Ownership of Intellectual Property | 35 | ||||
8.2 |
Patent Prosecution and Maintenance | 36 | ||||
8.3 |
Infringement or Misappropriation by Third Parties | 38 | ||||
8.4 |
Defense and Settlement of Third Party Claims | 39 | ||||
8.5 |
Patent Extension | 40 | ||||
8.6 |
CREATE Act | 40 | ||||
8.7 |
Trademarks | 40 | ||||
ARTICLE 9 |
REPRESENTATIONS, WARRANTIES AND COVENANTS | 40 | ||||
9.1 |
Mutual Representations and Warranties | 40 | ||||
9.2 |
Avidity Representations and Warranties | 41 | ||||
9.3 |
Mutual Covenants | 43 | ||||
9.4 |
Compliance | 44 | ||||
9.5 |
Disclaimer | 45 | ||||
ARTICLE 10 |
INDEMNIFICATION | 45 | ||||
10.1 |
Indemnity | 45 | ||||
10.2 |
Insurance | 46 |
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ARTICLE 11 |
CONFIDENTIALITY | 47 | ||||
11.1 |
Confidential Proprietary Information | 47 | ||||
11.2 |
Publicity | 49 | ||||
11.3 |
Publication | 50 | ||||
ARTICLE 12 |
TERM & TERMINATION | 50 | ||||
12.1 |
Term | 50 | ||||
12.2 |
Termination for Material Breach | 50 | ||||
12.3 |
Termination by Lilly | 51 | ||||
12.4 |
Termination for Patent Challenges | 52 | ||||
12.5 |
Effects of Termination | 52 | ||||
12.6 |
Survival | 54 | ||||
12.7 |
Bankruptcy Code | 54 | ||||
ARTICLE 13 |
GOVERNING LAW; DISPUTE RESOLUTION | 55 | ||||
13.1 |
Governing Law | 55 | ||||
13.2 |
Disputes | 55 | ||||
13.3 |
Mediation | 55 | ||||
13.4 |
Litigation; Equitable Relief | 56 | ||||
13.5 |
Excluded Claims | 56 | ||||
ARTICLE 14 |
MISCELLANEOUS | 56 | ||||
14.1 |
Entire Agreement; Amendment | 56 | ||||
14.2 |
Limitation of Liability | 57 | ||||
14.3 |
Independent Contractors | 57 | ||||
14.4 |
Notice | 57 | ||||
14.5 |
Severability | 58 | ||||
14.6 |
Non-Use of Names | 58 | ||||
14.7 |
Assignment | 58 | ||||
14.8 |
Avidity Change of Control | 58 | ||||
14.9 |
Waivers | 59 | ||||
14.10 |
Force Majeure | 60 | ||||
14.11 |
Interpretation | 60 | ||||
14.12 |
Counterparts; Electronic Signatures | 60 | ||||
14.13 |
Expenses | 60 | ||||
14.14 |
Further Assurances | 60 | ||||
14.15 |
No Third Party Beneficiary Rights | 61 | ||||
14.16 |
Construction | 61 | ||||
14.17 |
Cumulative Remedies | 61 | ||||
14.18 |
Extension to Affiliates | 61 |
iii
Exhibits
Exhibit 1.14 - Avidity Patents
Exhibit 4.2.1 - Reserved Targets
Exhibit 4.3 - Initial Research Plan
Exhibit 4.10 - Part A: Eli Lilly and Company Good Research Practices
Exhibit 4.10 - Part B: Eli Lilly and Company Animal Care and Use Requirement for Animal Researchers and Suppliers
Exhibit 11.2 - Joint Press Release
iv
[***] Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
RESEARCH COLLABORATION AND LICENSE AGREEMENT
THIS RESEARCH COLLABORATION AND LICENSE AGREEMENT (Agreement) is entered into as of April 17, 2019 (the Effective Date) by and between AVIDITY BIOSCIENCES, INC., a Delaware corporation having an address at 10975 N. Torrey Pines Rd., Suite 150, La Jolla, CA 92037 (Avidity), and ELI LILLY AND COMPANY, a corporation organized and existing under the laws of Indiana, with its principal business office located at Lilly Corporate Center, Indianapolis, Indiana 46285, U.S.A. (Lilly). Lilly and Avidity are each hereafter referred to individually as a Party and together as the Parties.
WHEREAS, Avidity is a biotechnology company engaged in the research and development of therapeutics based on targeted delivery of nucleic acid molecules;
WHEREAS, Lilly is a pharmaceutical company engaged in the research, development, manufacturing, marketing and distribution of pharmaceutical products, including therapeutic products, for use in humans and animals;
WHEREAS, Avidity and Lilly desire to collaborate in the validation of certain biological Targets (as defined below) and the research and development of antibody-nucleic acid conjugates as therapeutics;
WHEREAS, Lilly desires to obtain from Avidity, and Avidity desires to grant to Lilly, an exclusive license to develop, manufacture, and commercialize Compounds and Products (as defined below), subject to the terms and conditions of this Agreement; and
WHEREAS, in connection with the above license grant, Lilly is purchasing a convertible promissory note from Avidity pursuant to that certain Convertible Note Purchase Agreement between the Parties of even date herewith.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement and the Exhibits hereto shall have the following meanings (or as defined elsewhere in this Agreement):
1.1 Acquirer has the meaning set forth in the definition of Change of Control.
1.2 Affiliate means, with respect to either Party, any entity that, at the relevant time (whether as of the Effective Date or thereafter), directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Party, for so long as such control exists. As used in this Section 1.2, control means: (a) to possess, directly or indirectly, the power to direct or cause the direction of the management or policies of an
entity, whether through ownership of voting securities or by contract relating to voting rights or corporate governance; or (b) direct or indirect ownership of fifty percent (50%) (or such lesser percentage that is the maximum allowed to be owned by a foreign entity in a particular jurisdiction) or more of the voting share capital or other equity interest in such entity.
1.3 Agreement has the meaning set forth in the Preamble.
1.4 Alliance Manager has the meaning set forth in Section 2.2.
1.5 Applicable Laws means the applicable provisions of any and all federal, national, supranational, regional, state and local laws, treaties, statutes, rules, regulations, guidelines or requirements, administrative codes, guidance, ordinances, judgments, decrees, directives, injunctions, orders, or permits of or from any court, arbitrator, Regulatory Authority, Governmental Authority, taxing authority, national securities exchange or exchange listing organization having jurisdiction over or related to the relevant subject item that may be in effect from time to time during the Term.
1.6 Antibody means a molecule comprising at least one complementarity determining region of an immunoglobulin domain, including variants, modifications or derivatives of such complementarity determining region.
1.7 AOC means an Antibody-Oligo conjugate.
1.8 Avidity has the meaning set forth in the Preamble.
1.9 Avidity-Controlled Patents has the meaning set forth in Section 8.2.2.
1.10 Avidity External Costs means costs, expenses, and charges paid to Third Parties (or payable to Third Parties and accrued in accordance with U.S. GAAP) by Avidity or its Affiliates in the performance of the Research under the applicable Research Plan for a Program.
1.11 Avidity Indemnitee has the meaning set forth in Section 10.1.2.
1.12 Avidity Internal Costs means Aviditys FTE costs (calculated at the FTE Rate) incurred by Avidity or any of its Affiliates in the performance of the Research under the applicable Research Plan for a Program.
1.13 Avidity Know-How means all Know-How (including any Know-How that is Avidity Proprietary Technology) that Avidity or its Affiliate Controls as of the Effective Date or during the Term that is necessary or reasonably useful for the research, development, manufacturing, having made, use, keeping, importing, exporting, sale, offering for sale or other exploitation of Compounds and Products in the Field in the Territory. Notwithstanding the foregoing, if any Third Party becomes an Acquirer of Avidity after the Effective Date pursuant to a Change of Control, Avidity Know-How will exclude any Know-How that is Controlled by the Acquirer before the relevant Change of Control transaction or thereafter during the Term, provided, however, that Avidity Know-How will include any Know-How that would otherwise fall under the definition of Avidity Know-How that is contained in any Invention discovered, conceived of, or reduced to practice by or on behalf of the Acquirer in performing any activity under this Agreement or by using any Avidity Technology existing as of the closing of such Change of Control transaction or any Avidity Proprietary Technology regardless of when created.
2
1.14 Avidity Patent means any Patent that Avidity or its Affiliate Controls as of the Effective Date or during the Term that: (a) claims Avidity Know-How; or (b) Covers the research, development, manufacturing, having made, use, keeping, importing, exporting, sale, offering for sale or other exploitation of Compounds and Products in the Field in the Territory; including those Patents set forth on Exhibit 1.14. Notwithstanding the foregoing, if any Third Party becomes an Acquirer of Avidity after the Effective Date pursuant to a Change of Control, Avidity Patents will exclude any Patent that is Controlled by the Acquirer before the relevant Change of Control transaction or thereafter during the Term, provided, however, that Avidity Patents will include any Patents that would otherwise be included in the definition of Avidity Patents that claim an Invention made or generated by the Acquirer in performing any activity under this Agreement or by using any Avidity Technology existing as of the closing of such Change of Control transaction or any Avidity Proprietary Technology regardless of when created.
1.15 Avidity Proprietary Technology means Proprietary Technology of Avidity (or its Affiliate) that: (a) exists as of the Effective Date or is developed, acquired or in-licensed by Avidity and/or any of its Affiliates during the Term outside the scope of its activities under the Research Plan; and (b) is not the same as any Lilly Proprietary Technology, provided that in the case of Avidity Know-How (as opposed to Avidity Patents) that would otherwise be considered Avidity Proprietary Technology under this definition that is disclosed by Avidity or its Affiliate to Lilly (or its Affiliate), such Know-How shall only be considered Avidity Proprietary Technology to the extent it is marked or otherwise prominently designated to Lilly (or such Affiliate) as Avidity Proprietary Technology at the time of such disclosure or immediately thereafter.
1.16 Avidity Research Costs means, individually or collectively, the Avidity Internal Costs and the Avidity External Costs.
1.17 Avidity Technology means, individually or collectively, the Avidity Know-How and Avidity Patents. For clarity, Avidity Technology includes all Avidity Proprietary Technology.
1.18 Biosimilar Product means, with respect to a Product, and on a Product-by-Product and country-by-country basis, any product (including a generic product, biogeneric, follow-on biologic, follow-on biological product, follow-on protein product, similar biological medicinal product, or biosimilar product) approved by way of an abbreviated regulatory mechanism by the relevant Regulatory Authority in a country in reference to such Product, that in each case: (a) is sold in the same country (or is commercially available in the same country via import from another country) as such Product by any Third Party that is not a Sublicensee of Lilly or its Affiliates and that did not purchase such product in a chain of distribution that included any of Lilly or any of its Affiliates or its Sublicensees; and (b) meets the equivalency determination by the applicable Regulatory Authority in such country (including a determination that the product is comparable, interchangeable, bioequivalent, biosimilar or other term of similar meaning, with respect to the Product), in each case, as is necessary to permit substitution of such product for the Product under Applicable Law in such country.
3
1.19 Business Day means any day other than Saturday, Sunday, or any day that banks are authorized or required to be closed in San Diego, California or Indianapolis, Indiana.
1.20 Calendar Quarter means each respective period of three (3) consecutive months ending on March 31, June 30, September 30, and December 31 of any Calendar Year.
1.21 Calendar Year means each respective period of twelve (12) consecutive months commencing on January 1 and ending on December 31.
1.22 Change of Control means:
(a) with respect to either Party: (i) the acquisition by a Third Party, in one transaction or a series of related transactions, of direct or indirect beneficial ownership of more than fifty percent (50%) of the outstanding voting equity securities of such Party (excluding, for clarity, an acquisition by a Third Party where the stockholders of such acquired Person immediately prior to such transaction hold a majority of the voting shares of outstanding capital stock of the surviving entity immediately following such transaction); (ii) a merger or consolidation involving such Party, as a result of which a Third Party acquires direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the surviving entity immediately after such merger, reorganization or consolidation; or (iii) a sale of all or substantially all of the assets of such Party in one transaction or a series of related transactions to a Third Party. The acquiring or combining Third Party in any of (i), (ii) or (iii), and any of such Third Partys Affiliates (whether in existence as of or any time following the applicable transaction, but other than the acquired Party and its Affiliates as in existence prior to the applicable transaction or Affiliates it controls after the applicable transaction) are referred to collectively herein as the Acquirer; or
(b) with respect to the acquisition of Avidity by a Lilly Competitor, whether in one transaction or a series of related transactions, in addition to the items in (a) above, the acquisition of: (i) majority control of the board of directors or equivalent governing body of Avidity; (ii) the ability to cause the direction of the management or allocation of corporate resources of Avidity; or (iii) all or substantially all of the assets of Avidity related to the transactions contemplated by this Agreement; in which case such Lilly Competitor and its Affiliates (other than Avidity and its Affiliates in existence prior to the applicable transaction) shall also be considered an Acquirer.
1.23 Claim has the meaning set forth in Section 10.1.1.
1.24 Clinical Trial means a Phase I Clinical Trial, Phase II Clinical Trial or Phase III Clinical Trial, or any post-Regulatory Approval human clinical trial, as applicable.
1.25 Collaboration Materials means any tangible documents (whether in paper or electronic form) or other materials generated or Controlled by a Party that are delivered to the other Party to conduct Research as set forth in the Research Plans. For avoidance of doubt, Collaboration Materials, as used in this Agreement, does not include any intellectual property rights in the foregoing.
4
1.26 Collaboration Target means (a) the Initial Collaboration Targets and (b) any Replacement Targets selected by Lilly and approved by Avidity pursuant to Section 4.2.2. Collaboration Targets exclude any Discontinued Targets, and any Reserved Targets not selected as Initial Collaboration Targets pursuant to Section 4.2.1 unless and until selected as Replacement Targets pursuant to Section 4.2.2.
1.27 Combination Product has the meaning set forth in the definition of Net Sales.
1.28 Commercial Milestone Event has the meaning set forth in Section 7.2.1.
1.29 Commercialization means any and all activities directed to the offering for sale and sale of a Compound, Product, or other compound, product or therapy including: (a) activities directed to storing, marketing, promoting, detailing, distributing, importing, exporting, selling and offering to sell that Compound, Product, or other compound, product or therapy; (b) conducting Clinical Trials after Marketing Authorization of a Compound, Product, or other compound, product or therapy with respect to such Compound, Product, or other compound, product or therapy; (c) interacting with Regulatory Authorities regarding the foregoing; and (d) seeking pricing approvals and reimbursement approvals (as applicable) for that Compound, Product, or other compound, product or therapy in the Field in the Territory. When used as a verb, to Commercialize and Commercializing means to engage in Commercialization and Commercialized has a corresponding meaning.
1.30 Commercially Reasonable Efforts of a Party means that level of efforts and resources commonly applied by such Party [* * *].
1.31 Competing Program has the meaning set forth in Section 3.5.2.
1.32 Compound means any AOC that: (a) is Directed Against a Collaboration Target; and (b) is selected, discovered, used, generated, optimized or identified by either Party during the Term in the course of its activities under a Research Plan or otherwise under this Agreement.
1.33 Confidential Disclosure Agreement means that certain Confidential Disclosure Agreement entered into between the Parties as of March 5, 2018, as amended.
5
1.34 Confidential Proprietary Information has the meaning set forth in Section 11.1.1.
1.35 Control or Controlled means, with respect to any Know-How, Patents, or other intellectual property rights, that a Party has the legal authority or right (whether by ownership, license, or otherwise) to grant to the other Party a license, covenant not to sue, sublicense, access, or right to use (as applicable) under such Know-How, Patents, or other intellectual property rights, on the terms and conditions set forth herein, in each case without violating any obligations of the granting Party owed to a Third Party, breaching the terms of any agreement with a Third Party or subjecting the granting Party to any additional fee or charge; provided that the Know-How, Patents or intellectual property rights will be excluded from being considered Controlled by virtue of any such fee or charge only if the first Party notifies the other Party of the fee or charge and the other Party does not agree to reimburse the first Party for or otherwise bear the fee or charge.
1.36 Cover means, with respect to a claim of a Patent and a relevant Compound or Product, that such claim would be infringed, absent a license, by the research, development, making, having made, use, keeping, importation, exportation, offering for sale, sale, or other exploitation of such Compound or Product (considering claims of patent applications to be issued as then pending).
1.37 Data Package means, on a Collaboration Target-by-Collaboration Target basis, the package of data to be generated and any success criteria for the determination as to whether any Development Candidate directed to such Collaboration Target should be further developed as a Product, all of which shall be determined by the JRC and set forth in the applicable Research Plan for the applicable Collaboration Target.
1.38 Development Candidate has the meaning set forth in Section 4.1.
1.39 Development Milestone Event has the meaning set forth in Section 7.2.1.
1.40 Development Milestone Payment has the meaning set forth in Section 7.2.2.
1.41 Directed Against means, with respect to a compound or product and a Target, that the Oligo contained in such compound or product binds to and modulates such Target as its primary mechanism of action. For clarity, Directed Against requires direct Target interaction, and does not include pathway effects.
1.42 Disclosing Party has the meaning set forth in Section 11.1.1.
1.43 Discontinued Target means: (a) a Collaboration Target for which Lilly discontinues Research pursuant to Section 4.2.3; (b) a Collaboration Target for which the JRC determines not to develop further a Development Candidate pursuant to Section 4.4; or (c) a Collaboration Target for which the period in Section 4.4 lapses.
1.44 Dispute has the meaning set forth in Section 13.1.
1.45 Dollar means a U.S. dollar, and $ is to be interpreted accordingly.
6
1.46 Effective Date has the meaning set forth in the preamble to this Agreement.
1.47 Eli Lilly and Company Animal Care and Use Requirement for Animal Researchers and Suppliers has the meaning set forth in Section 4.10.
1.48 Eli Lilly and Company Good Research Practices has the meaning set forth in Section 4.10.
1.49 Excluded Claims has the meaning set forth in Section 13.5.
1.50 Excluded Technologies means any Patents Covering or Know-How directed to Antibody engineering, manufacturing (including expression vectors, cell lines, culture media and feeds), formulations, or devices.
1.51 Executive Officers means: (a) with respect to Avidity, its Chief Executive Officer; and (b) with respect to [* * *] or any other person that such officer designates from time to time.
1.52 FDA means the United States Food and Drug Administration or any successor agency thereto.
1.53 Field means all uses, including any and all uses for the diagnosis, prevention, amelioration, and treatment of any disease or medical condition in humans and animals.
1.54 First Commercial Sale means the first sale of a Product by Lilly or its Affiliates or their Sublicensees to a Third Party (excluding any Sublicensee) for end use or consumption of such Product in a given country after Regulatory Approval required to market and sell the Product has been granted with respect to such Product in such country in which such Product is sold. Furthermore, for purposes of clarity, the term First Commercial Sale as used in this Agreement shall not include: (a) sales for purposes of testing any Product, or of any Product samples; (b) any distribution or other sale solely for so-called treatment investigational new drug sales, named patient sales, compassionate or emergency use sales or pre-license sales, in each case provided that such Product is distributed without charge or sold at or below cost; (c) any sale of a Product by Lilly to its Affiliate (or their Sublicensees), unless there is a subsequent resale of the Product by such Affiliate or Sublicensee; nor (d) other similar non-commercial sales.
1.55 First Commercial Sale Milestone Event has the meaning set forth in Section 7.2.1.
1.56 FTE means the equivalent of a full-time Avidity employees work performing activities under a Research Plan, which is at least [* * *] per Calendar Year. If any such individual works partially on work under a Research Plan for a Program and partially on other work in a Calendar Quarter, then the FTE to be attributed to such individuals work hereunder shall be calculated based upon the percentage of such individuals total work time in such Calendar Quarter that such individual spent working under a Research Plan for such Program based on [* * *] per Calendar Year, applied consistently throughout the Calendar Year. Overtime, and work on weekends, holidays and the like will not be counted with any multiplier (e.g., time-and-a-half or double time) toward the number of hours that are used to calculate the FTE contribution. For clarity, no individual person can ever constitute more than a single FTE.
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1.57 FTE Rate means the rate of FTE costs incurred by Avidity, which for the purpose of this Agreement is [* * *] Dollars ($[* * *]) per FTE per Calendar Year, subject to annual increases beginning on [* * *] to reflect percentage increases in the Consumer Price Index for the US City Average (all times) from [* * *] and similarly calculated year to year increases each subsequent Calendar Year. The FTE Rate includes costs of salaries, benefits, other human resources-related costs associated with the employment of employees, supplies (other than supplies specifically identified as separate costs to be reimbursed by Lilly in the Research Plan), and supporting overhead and administrative allocations.
1.58 Good Laboratory Practices or GLPs means all applicable Good Laboratory Practice standards, including, as applicable: (a) as set forth in the then-current good laboratory practice standards promulgated or endorsed by the FDA as defined in 21 C.F.R. Part 58; and (b) the equivalent Applicable Laws in any relevant country, each as may be amended and applicable from time to time.
1.59 Good Manufacturing Practices or GMPs means all applicable Good Manufacturing Practices including, as applicable: (a) the principles detailed in the US Current Good Manufacturing Practices, 21 C.F.R. Parts 4, 210, 211, 601, 610 and 820; (b) European Directive 2003/94/EC and Eudralex 4; (c) the principles detailed in the WHO TRS 986 Annex 2, TRS 961 Annex 6 and TRS 957 Annex 2; (d) ICH Q7 guidelines; and (d) the equivalent Applicable Laws in any relevant country, each as may be amended and applicable from time to time.
1.60 Good Research Practices or GRP means research practices consistent with: (a) the research quality standards defining how Lillys research laboratories conduct good science for non-regulated work as set forth in Exhibit 4.10 Part A of this Agreement; and (b) the Research Quality Association (RQA), 2014 Quality in Research Guidelines for Working in Non-Regulated Research, each as may be amended and applicable from time to time.
1.61 Governmental Authority means any national, international, federal, state, provincial or local government, or political subdivision thereof, or any multinational organization or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, and any court or tribunal (or any department, bureau or division thereof, or any governmental arbitrator or arbitral body).
1.62 IND means an investigational new drug application filed with the FDA or any similar application filed with a Regulatory Authority in a country other than the U.S. required to commence Clinical Trials of a pharmaceutical product.
1.63 Indemnitee has the meaning set forth in Section 10.1.3.
1.64 Indemnitor has the meaning set forth in Section 10.1.3.
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1.65 Infringement has the meaning set forth in Section 8.3.1.
1.66 Initial Collaboration Targets has the meaning set forth in Section 4.2.1.
1.67 Initial Data Package has the meaning set forth in Section 4.3.2.
1.68 Initiation means, with respect to a Clinical Trial, the first dosing in the first human subject in such Clinical Trial.
1.69 Inventions means all discoveries and inventions, whether or not patentable, that are discovered, conceived of, or reduced to practice by or on behalf of a Party (whether solely or jointly by the Parties) in the course of performing activities under this Agreement.
1.70 JRC has the meaning set forth in Section 2.1.
1.71 JRC Chair has the meaning set forth in Section 2.1.
1.72 Know-How means any proprietary scientific or technical information, inventions, discoveries, results and data of any type whatsoever, in any tangible or intangible form, including inventions, discoveries, databases, safety information, practices, methods, instructions, techniques, processes, drawings, documentation, specifications, formulations, formulae, knowledge, know-how, trade secrets, materials, skill, experience, test data and other information and technology applicable to formulations, compositions or products or to their manufacture, development, registration, use, marketing or sale or to methods of assaying or testing them, including pharmacological, pharmaceutical, medicinal chemistry, biological, chemical, biochemical, toxicological and clinical test data, physical and analytical, safety, quality control data, manufacturing, and stability data, materials, studies and procedures, and manufacturing process and development information, results and data.
1.73 Lilly has the meaning set forth in the Preamble.
1.74 Lilly Competitor means a company that has consummated a Change of Control transaction with Avidity and that: (a) [* * *]; and (b) either (i) [* * *], or (ii) [* * *].
1.75 Lilly Indemnitee has the meaning set forth in Section 10.1.1.
1.76 Lilly Know-How means all Know-How (including any Know-How that is Lilly Proprietary Technology) that Lilly or its Affiliate Controls as of the Effective Date or during the Term that is necessary or reasonably useful for Research or that is used or generated by or on behalf of Lilly or its Affiliates in the course of conducting activities for a Program. Notwithstanding the foregoing, if any Third Party becomes an Acquirer of Lilly after the
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Effective Date pursuant to a Change of Control, Lilly Know-How will exclude any Know-How that is Controlled by the Acquirer before the relevant Change of Control transaction or thereafter during the Term, provided, however, that Lilly Know-How will include any Know-How that would otherwise fall under the definition of Lilly Know-How that is contained in any Invention that is discovered, conceived of, or reduced to practice by or on behalf of the Acquirer in performing any activity under this Agreement.
1.77 Lilly Patent means any Patent that is Controlled by Lilly or its Affiliate as of the Effective Date or during the Term that claims Lilly Know-How. Notwithstanding the foregoing, if any Third Party becomes an Acquirer of Lilly after the Effective Date pursuant to a Change of Control, Lilly Patents will exclude any Patent that is Controlled by the Acquirer before the relevant transaction or thereafter during the Term, provided, however, that Lilly Patents will include any Patent that would otherwise fall under the definition of Lilly Patents that claims an Invention that is made or generated by the Acquirer in performing any activity under this Agreement.
1.78 Lilly Proprietary Technology means Proprietary Technology of Lilly (or its Affiliates) that: (a) exists as of the Effective Date or is developed, acquired or in-licensed by Lilly and/or any of its Affiliates during the Term outside the scope of its activities under the Research Plan; and (b) is not the same as any Avidity Proprietary Technology, provided that in the case of Lilly Know-How (as opposed to Lilly Patents) that would otherwise be considered Lilly Proprietary Technology under this definition that is disclosed by Lilly or its Affiliate to Avidity (or its Affiliate), such Know-How shall only be considered Lilly Proprietary Technology to the extent it is marked or otherwise prominently designated to Avidity (or such Affiliate) as Lilly Proprietary Technology at the time of such disclosure or immediately thereafter.
1.79 Lilly Technology means the Lilly Know-How and Lilly Patents. For clarity, Lilly Technology includes all Lilly Proprietary Technology.
1.80 Losses has the meaning set forth in Section 10.1.1.
1.81 Marketing Authorization means, collectively, all Regulatory Approvals (including any pricing, reimbursement or access approvals) from the relevant Regulatory Authority necessary to initiate marketing and selling a Product in any country or jurisdiction.
1.82 Milestone Events means, individually or collectively, the Development Milestone Events, First Commercial Sale Milestone Events, and Commercial Milestone Events.
1.83 Milestone Payments has the meaning set forth in Section 7.2.1.
1.84 Net Sales means, with respect to a particular Product, the gross amount invoiced by Lilly, its Affiliates, or any Sublicensee to Third Parties (excluding any Sublicensee) for such Product in the Territory, less the following deductions to the extent included in the gross amount invoiced for such Product:
(a) [* * *];
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(b) [* * *];
(c) [* * *];
(d) [* * *];
(e) [* * *];
(f) [* * *];
(g) [* * *]; and
(h) [* * *].
Such amounts shall be determined from the books and records of Lilly or applicable Sublicensee, maintained in accordance with U.S. GAAP or, in the case of Sublicensees, such similar accounting principles, consistently applied. Lilly further agrees in determining such amounts, it will use Lillys then current standard procedures and methodology, including Lillys then current standard exchange rate methodology for the translation of foreign currency sales into Dollars or, in the case of Sublicensees, such similar methodology, consistently applied. In no event will any particular amount identified above be deducted more than once in calculating Net Sales.
Upon any sale or other disposition of a Product that should be included within Net Sales for any consideration other than exclusively monetary consideration on bona fide arms-length terms, then for purposes of calculating Net Sales under this Agreement, such Product is deemed to be sold exclusively for money at the average sales price during the applicable reporting period generally achieved for such Product in the country in which such sale or other disposition occurred.
In the event that the Product is sold as part of a Combination Product (where Combination Product means any pharmaceutical product which comprises the Product and other active compound(s) or ingredient(s)), the Net Sales of the Product, for the purposes of determining royalty payments, shall be determined by [* * *].
In the event that the weighted average sale price of the Product can be determined but the weighted average sale price of the other compound(s) or ingredient(s) cannot be determined, Net Sales for purposes of determining royalty payments shall be calculated by [* * *].
In the event that the weighted average sale price of the other compound(s) or ingredient(s) can be determined but the weighted average sale price of the Product cannot be determined, Net Sales for purposes of determining royalty payments shall be calculated by [* * *].
In the event that the weighted average sale price of both the Product and the other compound(s) or ingredient(s) in the Combination Product cannot be determined, the Net Sales of the Product shall be [* * *].
The weighted average sale price for a Product, other compound(s) or ingredient(s), or Combination Product shall be calculated [* * *] and such price shall be used during all applicable royalty-reporting periods for [* * *]. When determining the weighted average sale price of a Product, other compound(s) or ingredient(s), or Combination Product, the weighted average sale price shall be calculated by [* * *]. In the initial [* * *], a forecasted weighted average sale price will be used for the Product, other compound(s) or ingredient(s), or Combination Product. Any over or under payment due to a difference between forecasted and actual weighted average sale prices will be paid or credited in the first royalty payment of the following [* * *].
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1.85 Oligo means a polymer consisting of either natural or synthetic nucleotide units that is designed to hybridize to an RNA target by Watson and Crick base pairing rules.
1.86 Party and Parties has the meaning set forth in the Preamble.
1.87 Patents mean: (a) pending patent applications, issued patents, utility models and designs; (b) reissues, substitutions, confirmations, registrations, validations, re-examinations, additions, continuations, continued prosecution applications, continuations-in-part, or divisions of or to any of the foregoing; and (c) extensions, renewals or restorations of any of the foregoing by existing or future extension, renewal or restoration mechanisms, including supplementary protection certificates or the equivalent thereof.
1.88 Person means any corporation, limited or general partnership, limited liability company, joint venture, trust, unincorporated association, governmental body, authority, bureau or agency, any other entity or body, or an individual.
1.89 Phase I Clinical Trial means a clinical trial of a Product generally consistent with 21 C.F.R. § 312.21(a) (or the non-United States equivalent thereof).
1.90 Phase II Clinical Trial means a clinical trial of a Product generally consistent with 21 C.F.R. § 312.21(b) (or the non-United States equivalent thereof).
1.91 Phase III Clinical Trial means a clinical trial of a Product generally consistent with 21 C.F.R. § 312.21(c) (or the non-United States equivalent thereof).
1.92 Pricing and Reimbursement Approval means, with respect to a Product, the approval, agreement, determination or decision of any Regulatory Authority establishing the price or level of reimbursement for such Product, as required in a given country or jurisdiction prior to sale of such Product in such country or jurisdiction.
1.93 Product means any pharmaceutical or biologic product in any dosage form or formulation that contains or comprises a Compound.
1.94 Product-Specific Patent has the meaning set forth in Section 8.2.2.
1.95 Program means, on a Collaboration Target-by-Collaboration Target basis, any and all Research, development, manufacturing, and commercialization activities conducted under this Agreement with respect to any Compounds and Products that are Directed Against such Collaboration Target.
1.96 Program Patent means a Patent that claims a Program Invention.
1.97 Program Invention has the meaning set forth in Section 8.1.3.
1.98 Project Leader has the meaning set forth in Section 2.1.
1.99 Proprietary Technology of a Party means: (a) Patent rights Controlled by the Party and (b) Know-How that is Controlled by the Party.
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1.100 Prosecute and Maintain or Prosecution and Maintenance with respect to a particular Patent, means all activities associated with the preparation, filing, prosecution and maintenance of such Patent, together with the conduct of interferences, derivation proceedings, inter partes review and post-grant review, the defense of oppositions and other similar proceedings with respect to that Patent, including any activities associated with claims, including as a counterclaim or declaratory judgment action, of unpatentability, invalidity or unenforceability of such Patent that are brought by a Third Party in connection with an Infringement under Section 8.3.
1.101 Prosecuting Party has the meaning set forth in Section 8.2.2.
1.102 Receiving Party has the meaning set forth in Section 11.1.1.
1.103 Regulatory Approval means, collectively, any and all approvals (including supplements, amendments, pre- and post-approvals, pricing and reimbursement approvals), licenses, registrations, permits, notifications, and authorizations (including marketing and labeling authorizations) or waivers of any Regulatory Authority that are necessary for the testing, Research, development, registration, manufacture (including formulation), use, storage, import, export, transport, promotion, marketing, distribution, offer for sale, sale or other commercialization of a pharmaceutical product (including any Compound or Product) in any country or jurisdiction, including Pricing and Reimbursement Approval, as applicable.
1.104 Regulatory Authority means any Governmental Authority that has responsibility in its applicable jurisdiction over the testing, Research, development, registration, manufacture (including formulation), use, storage, import, export, transport, promotion, marketing, distribution, offer for sale, sale or other commercialization of pharmaceutical products (including any Compound or Product) in a given jurisdiction. For countries where governmental approval is required for pricing or reimbursement for a pharmaceutical product (including any Compound or Product) to be reimbursed by national health insurance (or its local equivalent), Regulatory Authority includes any Governmental Authority whose review or approval of pricing or reimbursement of such product is required.
1.105 Regulatory Filing means, collectively, any and all applications, filings, submissions, approvals (including supplements, amendments, pre- and post-approvals, pricing and reimbursement approvals), licenses, registrations, permits, notifications, and authorizations (including marketing and labeling authorizations) or waivers with respect to the testing, Research, development, registration, manufacture (including formulation), use, storage, import, export, transport, promotion, marketing, distribution, offer for sale, sale or other commercialization of a Product made to or received from any Regulatory Authority in a given country, including INDs.
1.106 Replacement Target has the meaning set forth in Section 4.2.2.
1.107 Research means, with respect to a Collaboration Target and a Compound, any research and pre-clinical activities through delivery of a Data Package for such Collaboration Target, as set forth in the applicable Research Plan for such Collaboration Target.
1.108 Research Budget has the meaning set forth in Section 4.3.
1.109 Research Plan has the meaning set forth in Section 4.3.
1.110 Research Term means the period of [* * *] from the Effective Date, as may be extended by Lilly pursuant to Section 4.6.
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1.111 Reserved Target has the meaning set forth in Section 4.2.1.
1.112 Residual has the meaning set forth in Section 11.1.5.
1.113 Royalty Term has the meaning set forth in Section 7.3.1.
1.114 Selection Period has the meaning set forth in Section 4.2.1.
1.115 Sublicensee means a Third Party that is granted a license or sublicense to research, develop, make, have made, use, keep, import, export, offer for sale, sell, or otherwise exploit Compounds and Products in the Field in the Territory, beyond the mere right to purchase Products from Lilly and its Affiliates, and excludes Lillys Affiliates or Third Party subcontractors that act solely for Lilly or its Affiliates in the supply chain or that perform discrete services (as opposed to being granted broad rights or responsibilities) on behalf of Lilly or its Affiliates.
1.116 Target means: (a) a polynucleotide sequence corresponding to a sequence identified in a publicly available curated database such as GenBank® by an accession number or similar information that uniquely identifies that sequence; (b) all variants of the identified sequence in human and other species; (c) all post-transcriptional material encoded by the identified sequence and all variants, including all naturally-occurring, disease-associated, and non-naturally occurring truncations, mutations, variants, fragments and post-transcriptional modifications thereof (including splice variants); (d) all post-translational material encoded by such post-transcriptional material including amino acid sequences and proteins; and/or (e) all multimeric forms of (a) through (d).
1.117 Term has the meaning set forth in Section 12.1.
1.118 Terminated Product means the relevant terminated Product as described in Section 12.5.
1.119 Terminated Target means the relevant terminated Collaboration Target as described in Section 12.5.
1.120 Territory means the entire world.
1.121 Third Party means a Person other than: (a) Lilly or its Affiliates; and (b) Avidity or its Affiliates.
1.122 U.S. means the United States of America and its territories and possessions.
1.123 Valid Claim means a claim of the composition of matter or the method of use of a Compound or Product (or any component thereof) for an approved use of such Product contained in: (a) an issued and unexpired patent that has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction that is not appealable or has not been appealed within the time allowed for appeal, and that has not been abandoned, disclaimed, denied or admitted to be invalid or unenforceable through reissue, re-examination or disclaimer or otherwise; or (b) a pending patent application that has not been cancelled, withdrawn or abandoned or finally rejected by an administrative agency action from which no appeal can be taken and that has not been pending for more than [* * *] from the date of its earliest priority date (provided that upon the issuance of a claim from such patent application, such claim shall again be deemed to be a Valid Claim (subject to Section 1.123(a))).
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1.124 Working Group has the meaning set forth in Section 2.3.
ARTICLE 2
GOVERNANCE AND JOINT RESEARCH COMMITTEE
2.1 Project Leader. Within [* * *] following the Effective Date, Lilly and Avidity shall each assign one (1) employee to serve as the primary point of contact between the Parties with respect to each Collaboration Target being prosecuted under the Programs (each, a Project Leader). The Project Leaders shall regularly communicate with each other to address Program-related issues, needs and updates and facilitate communications and organization of Working Groups associated with the Research Plan. Either Party, upon prior notice to the other Party, may change its Project Leader.
2.2 Alliance Manager. Within [* * *] following the Effective Date, each Party shall also appoint an individual to act as the Alliance Manager for such Party (each, an Alliance Manager). Each Alliance Manager shall thereafter be permitted to attend meetings of the JRC and any sub-committee as a nonvoting observer. The Alliance Managers shall be the primary point of contact for the Parties regarding the collaboration activities contemplated by this Agreement (other than the activities/responsibilities of the Project Leader outlined in Section 2.1) and shall help facilitate all such activities hereunder. For avoidance of doubt, the individual appointed by a Party to act as an Alliance Manager may, but need not, be the same individual appointed by such Party as a Project Leader.
2.3 Working Groups. The Parties shall establish working groups (each, a Working Group) to oversee the activities of the Research Plan. In addition, from time to time, the Parties may establish a Working Group to oversee particular additional projects or activities. Each Working Group shall undertake the activities delegated to it by the JRC. During the process of establishing each Working Group, such Working Group and the JRC shall agree regarding which matters such Working Group will resolve on its own and which matters such Working Group will advise the JRC regarding (and with respect to which such advice-specific matters the JRC will resolve). In addition to the Collaboration Target-specific Working Groups overseen by the respective Project Leaders, the Parties shall, at a minimum, establish three (3) additional Working Groups to oversee, respectively, (i) Collaboration Materials transfer pursuant to Section 3.4, (ii) the manufacturing supply chain for the Products, and (iii) the strategy for prosecution and maintenance of Patents that claim Program Inventions or that are Controlled by Avidity and exclusively licensed to Lilly under this Agreement.
2.4 Joint Research Committee. Within [* * *] after the Effective Date, the Parties shall establish a cross-functional, joint research committee (the JRC) composed of three (3) senior representatives from each Party that will oversee and manage the collaboration between the Parties with respect to each Program during the Research Term. The JRC may, from time to time, establish subcommittees as it deems necessary to further the purposes of this Agreement. Each Party shall appoint its respective representatives to the JRC from time to time, and may change its representatives, in its sole discretion, effective upon notice to the other Party designating such change. The representatives from each Party shall have appropriate technical credentials, experience and knowledge pertaining to and ongoing familiarity with the Research and applicable Programs. One (1) of the Lilly representatives on the JRC shall be designated the JRC Chair (the JRC Chair). The JRC Chair will be responsible for calling meetings of the JRC, circulating agendas and performing administrative tasks required to assure efficient operation of the JRC but shall not have any extra or additional vote.
2.5 Function and Powers of the JRC. The JRC will:
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(a) prepare, discuss, and approve initial Research Plans for each Program and prepare, review, discuss, and approve any amendments that may be necessary or desired to the Research Plans;
(b) oversee the generation and implementation of the Research Plans, including the timing and deliverables thereunder;
(c) discuss the progress of the Research and the selection, validation and development of the Collaboration Targets, Compounds, and Products;
(d) make determinations as to whether a Development Candidate should be further optimized by the Parties under and pursuant to the Research Plan;
(e) provide a forum for the Parties to share and discuss information relating to the research and validation of the Collaboration Targets (including Replacement Targets), Compounds and Products, including the results of the activities being carried out under the Research Plans;
(f) address issues arising in the performance of the Research Plans;
(g) establish subcommittees, direct and oversee any operating subcommittee on all significant issues, and resolve disputed matters that may arise at the subcommittees;
(h) facilitate the exchange of Know-How and Collaboration Materials as required hereunder; and
(i) perform any and all tasks and responsibilities that are expressly attributed to the JRC under this Agreement or as otherwise agreed by the Parties in writing.
2.6 Meetings. The JRC will meet at least [* * *] during the Research Term. The JRC may conduct such meetings by telephone, videoconference, or in person. Each Party may call special meetings of the JRC with at least [* * *] prior written notice, or a shorter time period in exigent circumstances, to resolve particular matters requested by such Party that are within the purview of the JRC. Meetings of the JRC are effective only if at least one (1) representative of each Party participates in such meeting. Each Party may invite a reasonable number of participants, in addition to its representatives, to attend JRC meetings in a non-voting capacity; provided that if either Party intends to have any Third Party (including any consultant) attend such a meeting, such Party shall provide prior written notice to the other Party. Such Party shall ensure that such Third Party is bound by confidentiality and non-use obligations consistent with the terms of this Agreement. Each Party is responsible for its own expenses incurred in connection with participating in and attending all such meetings. The JRC Chair or his/her designee shall keep minutes of each JRC meeting that records in writing all decisions made, action items assigned or completed and other appropriate matters. The JRC Chair shall send meeting minutes to all members of the JRC promptly after a meeting for review. Each member shall have [* * *] from receipt in which to comment on and to approve the minutes (such approval not to be unreasonably withheld, conditioned or delayed). If a member, within such time period, does not notify Lilly that s/he does not approve of the minutes, the minutes shall be deemed to have been approved by such member.
2.7 Decisions. The JRC will endeavor to make decisions by consensus, with the representatives of each Party having, collectively, one (1) vote on behalf of that Party. If the JRC cannot reach consensus or a dispute arises that cannot be resolved within the JRC, either Party may refer such dispute to the Executive Officers for resolution. If consensus cannot be reached with respect to a decision
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within [* * *] after attempted resolution by the Executive Officers, then: (a) [* * *] has the final decision-making authority with respect to all matters within the purview of the JRC relating to [* * *], including matters relating to [* * *] and [* * *] and [* * *] (including whether [* * *]), with respect to which [* * *] and [* * *]; and (b) all other matters within the purview of the JRC require the mutual agreement of the Parties; provided, however, that [* * *] shall not resolve any such a matter in a manner that: (i) would require [* * *], in each case, other than as is included in [* * *]; (ii) excuses, reduces, or delays [* * *] obligations under this Agreement, including with respect to payments; (iii) negates any consent right or other rights specifically granted or allocated to [* * *] under this Agreement; (iv) amends, modifies, or waives compliances with the terms of this Agreement; or (v) materially increases [* * *] obligations (including payment obligations) as a result. Further, [* * *] shall have the right to [* * *], provided such implementation is consistent with [* * *].
2.8 Authority. The JRC, the JRC Chair, and each subcommittee has only the powers assigned expressly to it in this Article 2 and elsewhere in this Agreement, and does not have any power to amend, modify, or waive compliance with this Agreement. Each Party retains the rights, powers, and discretion granted to it under this Agreement and neither Party may delegate or vest such rights, powers, or discretion in the JRC or subcommittee unless expressly provided for in this Agreement or the Parties expressly so agree in writing. The JRC shall not have the power to amend, waive or modify any term of this Agreement, and no decision of the JRC shall be in contravention of any terms and conditions of this Agreement. It is understood and agreed that issues to be formally decided by the JRC are limited to those specific issues that are expressly provided in this Agreement to be decided by the JRC.
2.9 Discontinuation of JRC. The JRC will continue until the expiration of the Research Term, at which time the JRC shall be promptly disbanded with immediate effect.
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ARTICLE 3
LICENSES; EXCLUSIVITY
3.1 License Grants.
3.1.1 Grant to Lilly. Subject to the terms and conditions of this Agreement, Avidity (on behalf of itself and its Affiliates) hereby grants to Lilly an exclusive (even as to Avidity and its Affiliates), worldwide, royalty-bearing license, with the right to grant sublicenses (through multiple tiers) as provided in Section 3.2, under the Avidity Technology to research, develop, make, have made, use, keep, import, export, offer for sale, sell, or otherwise exploit Products in the Field in the Territory. For clarity, the license granted to Lilly under this Section 3.1.1 does not include the right of Lilly to practice the Avidity Technology to research, develop, make, have made, use, keep, import, export, offer for sale, sell, or otherwise exploit any compounds or products other than the Compounds and Products (or compounds or products intended to become Compounds or Products) under this Agreement.
3.1.2 Grant to Avidity. Subject to the terms and conditions of this Agreement, Lilly hereby grants to Avidity a worldwide, fully paid, royalty-free, non-sub-licensable (except to Affiliates and Third Party subcontractors solely as needed to perform services for Avidity under this Agreement), non-exclusive license under the Lilly Technology, solely as and to the extent necessary to conduct Research pursuant to the Research Plans during the Research Term.
3.2 Sublicenses. Lilly and its Affiliates may grant one or more sublicenses under the rights and licenses granted to Lilly under Section 3.1.1, in full or in part, to Third Parties (with the right to sublicense through multiple tiers); provided, however, that: (a) any such permitted sublicense is consistent with and subject to the terms and conditions of this Agreement; and (b) Lilly shall remain responsible for performance of Lillys obligations under this Agreement and shall be responsible for all actions of each such Sublicensee as if such Sublicensee were Lilly hereunder. Lilly shall provide Avidity with prompt written notice of any grant of sublicense to a Third Party in the United States or Japan of the rights and licenses granted to Lilly under Section 3.1.1 that includes the right for such Third Party to (i) manufacture and (ii) sell or offer to sell, the Product in the applicable jurisdiction (but excluding any sublicenses solely for the distribution, marketing or promotion of Products), and shall provide Avidity with an executed copy of any such sublicense promptly after execution of such sublicense, redacted solely as necessary to protect confidential or commercially sensitive information.
3.3 Subcontracting. Subject to the terms of this Section 3.3 and Section 9.3, Lilly may engage its Affiliates or Third Party subcontractors (including contract research organizations and contract manufacturing organizations) to perform its obligations under this Agreement, and Avidity may engage its Affiliates or Third Party subcontractors (including contract research organizations and contract manufacturing organizations) to perform such portions of its Research obligations under this Agreement that it customarily engages for its other similar research activities. The activities of any such Third Party subcontractors will be considered activities of such subcontracting Party under this Agreement. The subcontracting Party shall ensure compliance by such Third Party subcontractors with the terms of this Agreement, including any applicable Research Plans. The subcontracting Party shall ensure, prior to engaging any Third Party subcontractor, that such Third Party subcontractor is subject to written agreements containing terms and conditions that: (a) protect the rights of the Parties under this Agreement, including by imposing obligations of confidentiality on each such Third Party subcontractor that are no less than the obligations of confidentiality on each Party under this Agreement; (b) do not under any circumstance impose any payment obligations or liability on the non-subcontracting Party; and (c) are otherwise consistent with the terms of this Agreement.
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3.4 Collaboration Materials Transfer. If either Party is required to transfer to the other Party any Collaboration Materials pursuant to the Research Plan, the terms of this Section 3.4 shall apply. The transferring Party shall provide the other Party with the applicable Collaboration Materials in accordance with the Research Plan. The receiving Party shall use the Collaboration Materials solely to conduct the activities contemplated under the Research Plan and for no other purpose. The receiving Party shall not sell, transfer, disclose or otherwise provide access to the Collaboration Materials without the written consent of the providing Party, except that the receiving Party may allow access to the Collaboration Materials to its Affiliates and its and their respective employees and officers who require such access to perform its activities under this Agreement and solely for purposes consistent with this Agreement; provided that the receiving party binds such Affiliates, employees and officers by written agreement to retain and use the Collaboration Materials only in a manner that is consistent with the terms of this Agreement. THE COLLABORATION MATERIALS ARE PROVIDED AS IS. WITHOUT LIMITING SECTIONS 9.1 AND 9.2, NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND, ARE GIVEN BY THE PROVIDING PARTY WITH RESPECT TO ANY OF THE COLLABORATION MATERIALS, INCLUDING THEIR CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The receiving Party acknowledges the experimental nature of the Collaboration Materials and that accordingly, not all characteristics of the Collaboration Materials are necessarily known. The Collaboration Materials transfer to be undertaken under this Section 3.4 shall be overseen by a Working Group established for such purposes, which Working Group may put in place a Collaboration Materials transfer plan expressly identifying Collaboration Materials to be transferred and the timing for such transfer.
3.5 Exclusivity.
3.5.1 General. Except in connection with the performance of activities under this Agreement, Avidity shall not (by itself or through any Third Party) and shall cause its Affiliates (by themselves or through any Third Party) not to during (a) the [* * *] (with respect to any Reserved Target that [* * *]), (b) the [* * *] (with respect to [* * *]), or (c) the Term (with respect to a given Collaboration Target), in each case: (i) research, develop, manufacture, commercialize or otherwise exploit any compound or product that is [* * *]; or (ii) sell, assign, transfer, convey, license, sublicense, covenant not to assert or otherwise grant, or transfer to, any Third Party, any rights or immunities to or under the Avidity Technology to conduct such activities described in Section 3.5.1(a).
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3.5.2 Avidity Acquisition of Existing Competing Program. Notwithstanding Section 3.5.1, if after the Effective Date any Third Party becomes an Affiliate of Avidity that Avidity controls (as such term is defined in the definition of Affiliate) as a result of a merger, acquisition, consolidation, asset sale, or other similar transaction (whether in a single transaction or series of related transactions), and, as of the closing date of such transaction, such Third Party is engaged in: (a) the research, development, manufacture, commercialization, or other exploitation of a compound or product; or (b) the licensing, conveyance, sublicensing or other grant of rights in Patents and Know-How with respect to such a compound or product, in each case of (a) and (b) that would cause Avidity to breach its exclusivity obligations set forth in Section 3.5.1 (such activities, a Competing Program), then Avidity shall notify Lilly of such transaction within [* * *] after the closing date of such transaction, and Avidity shall (or shall cause such Affiliate to), within [* * *] after the closing of such transaction, either: (i) complete a Divestiture of such Competing Program; or (ii) cease and terminate the Competing Program. Divestiture, as used in this Section 3.5.2 and Section 3.5.3, means the sale or transfer of rights to the Competing Program by Avidity to a Third Party without receiving a continuing share of profit, royalty payment, or other economic interest in the success of such Competing Program.
3.5.3 Existing Competing Program of an Acquirer. Subject to Section 14.8 and notwithstanding Section 3.5.1, if after the Effective Date any Third Party becomes an Acquirer of Avidity as a result of a Change of Control of Avidity, and, as of the closing date of such transaction, such Third Party is engaged in a Competing Program, then Avidity shall notify Lilly of such transaction within [* * *] after the closing date of such transaction, and Avidity shall (or shall cause its Acquirer or successor entity to), within [* * *] after the closing of such transaction, either: (a) continue such Competing Program and implement and enforce effective walls and screens between personnel working in the business of Avidity related to the transactions contemplated by this Agreement, on the one hand, and the Competing Program, on the other hand, to ensure that no information relating to any Compounds or Products or the transactions contemplated by this Agreement is accessible by such Acquirer (or any of its Affiliates) in connection with the Competing Program; (b) complete a Divestiture of such Competing Program; or (c) cease and terminate the Competing Program.
3.5.4 Other Activities. Except as expressly provided in this Article 3, each Party may: (a) engage in research, manufacturing, development or commercialization activities that utilize technologies similar to or involve products competitive with those contemplated by this Agreement; and (b) use any publicly available information and research results (including any publicly available information of the other Party) to the same extent as Third Parties generally are legally permitted to do so. Except as expressly provided in this Agreement, nothing in this Agreement, including any obligation to promote Products or any restriction on the use of Confidential Proprietary Information, shall create: (i) any obligation not to research, develop, manufacture, commercialize or otherwise exploit any product; or (ii) any obligation to utilize a sales force for Products separate from sales forces for other products. Each Party has limited resources, and as a result it is anticipated that personnel assigned to the activities contemplated by this Agreement may also participate in other activities that may utilize technologies similar to or involve products competitive with those contemplated by this Agreement.
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3.5.5 Active Development. Notwithstanding anything to the contrary, including Section 3.5.4, if Lilly is researching, developing, manufacturing, commercializing or otherwise exploiting any compound or product comprising an AOC that is Directed Against a Collaboration Target during the Term and Lilly is not Actively Developing any Compound or Product that is Directed Against such Collaboration Target, then such Collaboration Target will be deemed a Discontinued Target and the terms of Section 4.7 will apply; provided, however, that the foregoing shall cease to apply following the First Commercial Sale of a Product Directed Against such Collaboration Target. Actively Developing means that Lilly or any of its Affiliates or Sublicensees are engaging in or have engaged within the preceding [* * *] in one or more of the following activities for a Compound or Product: pre-clinical research and development; formulation development; study/protocol design activity; protocol preparation; vendor selection; awaiting protocol approval from the applicable institutional review board or Regulatory Authority; patient recruitment; patient enrollment; patient treatment, evaluation and monitoring in Clinical Trials; data collection and analysis; auditing of vendors, clinical sites, manufacturing facilities and storage facilities; report writing for any pre-clinical or clinical study or manufacturing activity; communicating or negotiating with Regulatory Authorities; regulatory file(s) being drafted or pending (including preparation of one or more applications for Regulatory Approval); awaiting a response from the applicable Regulatory Authorities (including with respect to pending applications for Regulatory Approval); pricing or reimbursement approvals pending; manufacturing investment work; packaging development; manufacturing scale-up and validation; awaiting go/no go decision from a formal research and development committee within Lilly or such Affiliate or Sublicensee to initiate or continue any of the preceding activities; negotiating contracts with Third Parties to implement any of the foregoing activities (e.g., clinical trial agreements, services agreements, manufacturing and supply agreements); publication writing; seeking licensing partners; endeavoring to overcome circumstances outside of Lillys or its Affiliates, or Sublicensees reasonable control (including supply, regulatory and other issues) that impair the ability of Lilly or its Affiliate or Sublicensee to perform any of the foregoing activities; reasonable, good faith planning or preparation for any of the foregoing activities; and reasonable, good faith evaluation of the results of any of the foregoing activities with the goal of making a timely recommendation for next steps.
3.6 No Other Rights; Retained Rights. Except as set forth herein, neither Party shall be granted, by implication or otherwise: (a) any license or other intellectual property interest under any trademarks, Know-How, or Patents of the other Party; or (b) any Proprietary Technology of the other Party. Except as expressly granted under Section 3.1.1 and as limited by Section 3.5.1, Avidity and its Affiliates retain all other right, title, and interest in and to practice and exploit the Avidity Technology. Furthermore, notwithstanding anything to the contrary in this Agreement, by entering into this Agreement, neither Party is forfeiting any rights that such Party may have to perform research activities in compliance with 35 U.S.C. § 271(e)(1) or any experimental or research use exemption that may apply under Applicable Law or in any country.
ARTICLE 4
RESEARCH ACTIVITIES
4.1 Overview. During the Research Term, the Parties shall conduct Research for each Program to: (a) during the Selection Period described in Section 4.2, perform activities to determine the feasibility of researching and developing compounds directed to each Reserved Target to permit Lilly to select Collaboration Targets pursuant to Section 4.2.1; (b) pursuant to the applicable Research Plan, validate Collaboration Targets selected pursuant to Section 4.2.1; (c) pursuant to the applicable Research Plan, identify, develop, optimize, and select development candidates, each consisting of a Compound that is Directed Against a Collaboration Target (a
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Development Candidate); and (d) pursuant to the applicable Research Plan, formulate Products following selection of Development Candidates for further research and development pursuant to Section 4.4. Lilly may select up to six (6) Collaboration Targets and may replace up to [* * *] Collaboration Targets pursuant to Section 4.2. Avidity shall provide Lilly with the deliverables described in each Research Plan pursuant to Section 4.3. Following receipt of the Data Package, as further described in Section 4.4, the JRC shall select one or more Development Candidates for the applicable Collaboration Target. Both Parties acknowledge and agree that, during the Research Term, the Parties may collaborate to combine their respective Proprietary Technologies to optimize the desired pharmaceutical, CMC or safety profile of the Compound or Product. Notwithstanding anything to the contrary in the Research Plan, Lilly shall have sole control and responsibility for the research of Antibodies to be used in Compounds and any research of Antibodies shall be outside the scope of the Research Plans. In addition, Lilly is free to perform Research on Compounds (or compounds intended to become Compounds) outside the scope of the Research Plan using its own resources.
4.2 Collaboration Targets. Lilly may select and replace Collaboration Targets pursuant to this Section 4.2. The number of Collaboration Targets under active Research at any given time shall be: (a) no fewer than [* * *] during each of the first [* * *] of the Research Term; and (b) no more than [* * *] at any time during the Research Term.
4.2.1 Selection of Initial Collaboration Targets. As of the Effective Date, the Parties have identified the Targets set forth in Exhibit 4.2.1 as Targets to be reserved under this Agreement (the Reserved Targets). Within the period between the Effective Date and [* * *] following the Effective Date (the Selection Period), Lilly shall identify to Avidity in writing at least [* * *] and up to [* * *] of the Reserved Targets as the initial Targets to be Researched under Research Plans subject to this Agreement (the Initial Collaboration Targets). During the applicable timeframe described in this sentence, Lilly may propose additional Targets (excluding [* * *] Targets) during: (a) the [* * *] of the Selection Period with respect to any Reserved Targets that are not [* * *]; and (b) the Selection Period, with respect to any Reserved Targets that are [* * *]; Lilly may propose additional Targets to be added as Reserved Targets. If such Target(s) satisfy the requirements of being a Replacement Target under Section 4.2.2, such Target(s) shall be deemed Reserved Target(s) and Exhibit 4.2.1 shall be deemed to be updated to include such Target(s) as Reserved Target(s). Following: (a) the [* * *] of the Selection Period, with respect to any Reserved Targets that are not [* * *]; and (b) the Selection Period, with respect to any Reserved Targets that are[* * *]; any such Reserved Targets not selected as Initial Collaboration Targets shall cease to be Reserved Targets and shall no longer be subject to this Agreement (including Section 3.5), except that such Targets may be selected as Replacement Targets of Collaboration Targets to the extent they otherwise satisfy the requirements of Section 4.2.2.
4.2.2 Replacement of Collaboration Targets. Lilly may, at any time during the Research Term, replace a Collaboration Target with another Target (excluding [* * *] Targets) (a Replacement Target) up to [* * *] times upon written notice to Avidity and with Aviditys written approval, which approval Avidity may withhold only if Avidity or any of its Affiliates: (a) has commenced or is actively conducting a bona fide internal program consisting of research and development activities to research and develop any compound or product that is Directed Against the proposed Replacement Target[* * *]; (b) has an [***] that would conflict with the inclusion of the Replacement Target as a Collaboration Target under this Agreement or would prevent or conflict with the exclusivity that Lilly would otherwise have under Section 3.5 with respect to such Target if included as a Collaboration Target hereunder; or (c) has an [* * *] and [* * *]. Upon Aviditys written approval, the previous Collaboration Target shall cease to be a Collaboration Target and become a Discontinued
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Target, and the Replacement Target shall become a Collaboration Target. If Avidity disapproves of a proposed Replacement Target for one of the reasons specified above, and at a later time that reason no longer applies to the Replacement Target (because, for example, Avidity has discontinued an internal program to research and develop a compound or product Directed Against the proposed Replacement Target), Avidity shall promptly notify Lilly and if Lilly has not yet selected its maximum number of Replacement Targets, Lilly may select the Target subject to the notification as a Replacement Target. For clarity, Lilly may exercise such replacement right up to a total of [* * *] times for all Collaboration Targets, and the maximum number of Replacement Targets that may become Collaboration Targets is [* * *] total. For further clarity, any Targets that are chosen as replacements of Reserved Targets during the Selection Period shall not be considered Replacement Targets and shall not count towards the [* * *] maximum number of Replacement Targets (except with respect to any Target that is not selected as an Initial Collaboration Target but is subsequently chosen as a Replacement Target for a Target selected as a Collaboration Target).
4.2.3 Research Discontinuance. Without limiting Sections 12.3.1 and 12.3.2, subject to Lilly maintaining a Program for at least [* * *] Collaboration Targets during the first [* * *] after the Effective Date, Lilly may discontinue the Research with respect to a Collaboration Target at any time upon [* * *] prior written notice to Avidity. Upon expiration of such [* * *] period, such Target shall cease to be a Collaboration Target and become a Discontinued Target.
4.3 Research Plans.
4.3.1 Content. The Parties shall conduct Research for each Collaboration Target pursuant to a comprehensive written research plan (each, a Research Plan) that sets forth, for each Program: (a) the objective of the applicable Research Plan and the non-clinical Research activities to be conducted by each of the Parties to validate such Collaboration Target and to identify, develop, optimize, and select a Development Candidate, and the allocation of activities between the Parties; (b) the expected resources to be allocated to and the anticipated number of FTEs to be dedicated to performing such Research; (c) a budget setting out by Calendar Quarter the anticipated Avidity Internal Costs and the Avidity External Costs to be
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incurred by Avidity and its Affiliates in the conduct of the Research for such Program (the Research Budget); (d) the timeline and milestones of such activities; and (e) the Data Package. The Research Plans shall, in form and substance, substantially follow the form of Research Plan, in form and substance, as set forth on Exhibit 4.3, including with respect to the general principles for allocation of responsibilities set forth therein, except to the extent the Parties agree to any deviations from such form with respect to any particular Collaboration Target.
4.3.2 Approval and Amendments. Within [* * *] of the selection of a Collaboration Target (including any Replacement Target selected under Section 4.2.2), the Parties shall prepare, discuss, and mutually agree on the Research Plan for such Collaboration Target, and shall determine the Data Package specific for such Collaboration Target that constitutes a collection of information and pre-clinical results necessary to determine whether a particular Development Candidate Directed to such Collaboration Target will be further developed in IND-enabling studies (the Initial Data Package). The JRC shall regularly review the Research Plans and the progress of activities being conducted under the Research Plans, in no event less frequently than [* * *]. Either Party may propose amendments to the Research Plan for a Program from time to time as appropriate, to take into account completion, commencement, or cessation of activities contemplated in the then-current Research Plan for such Program or any newly available information related to such Program. Such amendments shall be effective upon JRC approval and subject to the decision making in accordance with Section 2.7, provided that any amendment to the Data Package (including the Initial Data Package) shall be subject to the mutual agreement of the Parties, and neither Party shall unreasonably withhold such agreement for any amendment to the Data Package as a result of new scientific findings unless amendment based on such scientific findings would be necessary or consistent with the general practices customarily followed by Lilly. Notwithstanding the foregoing, if the Parties are unable to agree on an amendment to a Data Package (including whether or not such amendment is necessary or useful) despite their good faith efforts, [* * *] determination shall control. The Parties shall update the Research Plan and/or Research Budget as appropriate to account for the change in activities thereunder as a result of any amendment to the Data Package.
4.4 Selection of Development Candidate. Within [* * *] after Avidity delivers a complete Data Package (which the Parties agree is accurate and complete in all material respects) to the JRC, the JRC shall determine whether a Development Candidate should be further optimized by the Parties under and pursuant to the Research Plan. Upon designation of a Development Candidate for further development under this Agreement, the Parties shall perform such additional Research allocated to them under the applicable Research Plan for formulation of a Product and further optimization of such Product. If the [* * *] time period lapses without a decision by the JRC, then the dispute resolution provisions of Section 2.7 shall apply, with [* * *] having the final authority on the determination of whether a Development Candidate should not be further developed under this Agreement. If the JRC (or the Executive Officers or [* * *], in the case of the preceding sentence where the [* * *] time period lapses without a decision by the JRC) determines that a Development Candidate should not be further developed under this Agreement, the applicable Collaboration Target will cease to be a Collaboration Target and will be a Discontinued Target subject to Section 4.7. Subject to Section 4.2.2 (including the maximum number of Replacement Targets set forth in Section 4.2.2), Lilly may elect to replace such Discontinued Target with a Replacement Target.
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For avoidance of doubt, if Lilly has expressed in such [* * *] period its intention to pursue a Development Candidate for further optimization, then the end of the [* * *] period shall not itself result in the Collaboration Target becoming a Discontinued Target unless and until determined by the JRC (or the Executive Officers or [* * *]).
4.5 Records; Reports.
4.5.1 Records. Avidity (and Lilly, to the extent any Research is assigned to Lilly under a Research Plan) shall maintain, or cause to be maintained, during the Research Term and for a reasonable period of time thereafter that is consistent with industry standards, complete and accurate records of its Research for each Program in sufficient detail and in a good scientific manner appropriate for scientific, patent, and regulatory purposes, which records will reasonably reflect all work performed by or on behalf of such Party under the Research Plan for each Program. Lilly may request a copy of any such records of Avidity, except that Avidity may redact any portion of such records that Avidity reasonably determines to constitute Confidential Proprietary Information that is not licensed to Lilly hereunder, or to which Lilly does not otherwise have a right hereunder.
4.5.2 Reports and Data Package. Avidity (and Lilly, to the extent any research is assigned to Lilly under a Research Plan) shall report to Lilly (or Avidity, if applicable) through the JRC (or its designated subcommittee) its results in conducting Research under the Research Plan for each Program. For each Program, Avidity shall provide the JRC with: (a) the deliverables set forth in the Research Plan for such Program in accordance with such Research Plan, including a written report summarizing the data and information generated under each Program within [* * *] after the completion of Aviditys Research for such Program; and (b) on a periodic basis during the Research Term, all data generated by or on behalf of Avidity in performance of the Research for such Program under this Agreement. In no event will Avidity be required to provide Lilly or the JRC any data, results, or information outside the scope of the Research Plan.
4.6 Research Term Extension. Notwithstanding anything to the contrary, Lilly may, in its sole discretion, extend the Research Term in up to [* * *] additional increments of no less than [* * *] each, for up to a total of [* * *] of additional extension each upon written notice to Avidity at least [* * *] prior to the expiration of the existing Research Term. The Research Term may not exceed [* * *] after the Effective Date without Aviditys prior written consent. If Lilly desires that Avidity conduct additional research or development activities after the expiration of the Research Term and Avidity agrees, in its sole discretion, to conduct such additional activities, the Parties shall negotiate in good faith the terms and conditions of Aviditys conduct of such additional activities.
4.7 Discontinued Targets. Once a Collaboration Target becomes a Discontinued Target: (a) all rights and licenses granted under this Agreement will terminate with respect to such Discontinued Target; and (b) either Party may develop and commercialize compounds and products that are Directed Against such Discontinued Target at its own cost. For clarity, the exclusivity obligations of Section 3.5 do not apply to a Discontinued Target. If such Discontinued Target or the Compound Directed Against such Discontinued Target is Covered by a Lilly Patent, the Parties shall reasonably cooperate to discuss in good faith a potential separate
25
agreement detailing the transition to Avidity of Lillys rights and obligations (or portions thereof) with respect to such Discontinued Target or Compound Directed Against such Discontinued Target, which shall at least include the obligation for Avidity to assume applicable obligations to Third Parties, and may provide for the payment of royalties or other compensation by Avidity to Lilly for the Commercialization by Avidity of any Compound that includes any Lilly Patent; and provided, however, that Lilly shall have no obligation to grant Avidity a license to any Excluded Technologies or to discuss any such license as part of such good faith discussions. Notwithstanding the foregoing, if the Parties are unable to agree on the terms of such a separation agreement within [* * *] of commencement of discussions with respect thereto despite their good faith efforts, Lilly shall have no further obligation to enter into such an agreement or negotiate with Avidity with respect thereto.
4.8 Diligence. Each Party shall use Commercially Reasonable Efforts to execute and to perform, or cause to be performed, the Research assigned to it in each Research Plan in a good scientific manner and in compliance with Applicable Law.
4.9 Research Funding.
4.9.1 Avidity Research Costs. Lilly shall reimburse Avidity for all Avidity Research Costs for each Program, provided, that such Avidity Research Costs do not exceed [* * *] percent ([* * *]%) of the applicable Research Budget for such Program. If Avidity reasonably anticipates that it will exceed [* * *] percent ([* * *]%) of the applicable Research Budget for a Program, Avidity shall notify Lilly in writing and the Parties shall discuss in good faith whether to amend the Research Budget to address such overrun, provided that Avidity shall maintain the Avidity Research Costs to avoid such budget overrun absent any change in the Research Plan or any scientific or regulatory reasons beyond the reasonable control of Avidity (taking into account matters of objectively reasonable calculation and efficiency of application of Avidity Research Costs); further provided that (subject to the foregoing provision) Avidity shall not be required to perform any research activities or other development activities if such activities would result in any Avidity Research Costs that would not be reimbursed by Lilly.
4.9.2 Cost Calculation Mechanism. The Avidity Research Costs, and any other costs for which this Agreement requires Lilly reimburse or be responsible for Aviditys costs, shall be calculated in accordance with this Section 4.9.2 as follows:
(a) Lilly shall compensate Avidity for Avidity Research Costs, provided that the nature and scope of the work performed by Avidity: (i) is set forth in the Research Plan; or (ii) has otherwise been approved in advance in writing by Lilly;
(b) Avidity shall invoice Lilly for reimbursement of Avidity Internal Costs for each Program on a [* * *] within [* * *] following the end of the applicable Calendar Quarter. Lilly shall then have [* * *] after its receipt of such invoice to review such invoice and raise any disputed amounts to Avidity. If Lilly does not dispute any amounts payable under an applicable invoice during such [* * *] period, then Lilly shall pay the amounts payable under any such invoice in arrears and within [* * *] following such [* * *] review period (i.e., [* * *] after its receipt of such invoice). Avidity shall submit with each invoice information and documentation detailing the FTE costs applicable to Aviditys efforts for such applicable Calendar Quarter period, including the work packages of the Research Plan items worked on and the number of FTEs assigned to each work package;
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(c) Notwithstanding the foregoing, Avidity External Costs incurred by Avidity in accordance with the Research Plan shall be invoiced separately by Avidity upon Aviditys receipt of the applicable Third Partys invoice. Irrespective of whether such payments are made in advance or in arrears, Lilly shall then have [* * *] after its receipt of such invoice to review such invoice and raise any disputed amounts to Avidity. If Lilly does not dispute any amounts payable under an applicable invoice during such [* * *] period, Lilly shall pay the amounts payable under any such invoice within [* * *] following such [* * *] review period (i.e., [* * *] following its receipt of such invoice); provided, that, if Lilly reimburses Avidity for advance payments made by Avidity to any Third Party, Avidity shall provide the final actual cost per invoiced period and a true up of actual cost compared to advance payment (planned cost) to Lilly. If the advance payment(s) turn out to be higher than the actual cost incurred by Avidity, Avidity shall credit the respective amount of the advance payment to the next invoice or invoices payable by Lilly, and in the event there are no further invoices anticipated, shall reimburse Lilly within [* * *] of such true up;
(d) As long as Avidity provides development support to Lilly and for a period of [* * *] thereafter, Avidity shall maintain complete and accurate books and records regarding the Avidity Internal Costs and Avidity External Costs invoiced to Lilly. Lilly shall have the right to have an accounting firm inspect Aviditys records solely for purposes of determining the accuracy of the Avidity Internal Costs and the Avidity External Costs in accordance with Section 7.6 applied mutatis mutandis (subject only to replacing references to Lilly with references to Avidity, and vice versa, and other analogous changes, including changes related to the subject matter of the audit); and
(e) Lilly shall bear its own internal costs and out-of-pocket expenses with respect to any Research that Lilly conducts for each Program.
4.10 Certain Standards Applicable to Work. All Research and development done by either Party for non-regulated work under this Agreement will be conducted in accordance with the Research Plans, Eli Lilly and Company Good Research Practices, Eli Lilly and Company Animal Care and Use Requirement for Animal Researchers and Suppliers and all Applicable Laws, including those regarding data privacy and data security laws and regulations. For purposes of this Agreement, Eli Lilly and Company Good Research Practices means the compiled set of shared research quality standards defining how Lillys research laboratories conduct good science for non-regulated work as set forth in Exhibit 4.10 Part A. For purposes of this Agreement, Eli Lilly and Company Animal Care and Use Requirement for Animal Researchers and Suppliers means the guidelines relating to animal care and use for research done on behalf of Lilly as set forth in Exhibit 4.10 Part B. If Lilly reasonably requests, Avidity will complete a self-assessment examination form based on such quality standards. If it has not done so prior to the Effective Date, a duly authorized representative of Lilly may make an on-site visit to Avidity for the purpose of conducting a quality assessment or quality audit for non-regulated work. Lilly may conduct compliance audits of Avidity during business hours, for a duration consistent with the quantity of material to be reviewed, and no more than [* * *], except in the case of audits for cause, in accordance with the procedures set forth in Section 7.6 to ensure compliance with applicable GLP, GRP or GMP, provided Lilly has requested such audit with written notice of at least [* * *] and such audit does not unreasonably interfere with Aviditys operations. All such audits shall be done at Lillys cost and expense.
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ARTICLE 5
DEVELOPMENT, MANUFACTURING, AND REGULATORY MATTERS
5.1 Development and Manufacturing Responsibilities. Except with respect to Research activities conducted by Avidity pursuant to a Research Plan for a Program, Lilly shall be responsible for, and shall bear all costs associated with, the development and manufacture of Compounds and Products for such Program. Subject to the terms of this Agreement, all decisions concerning the development of Compounds and Products following Research, including the clinical and regulatory strategy of Compounds and Products covered under this Agreement, is within the sole discretion of Lilly.
5.2 Diligence. Lilly shall use Commercially Reasonable Efforts to develop and to obtain Regulatory Approval for [* * *] per Collaboration Target in [* * *].
5.3 Reports. Lilly shall keep Avidity reasonably informed as to the progress and results of its and its Affiliates and Sublicensees development activities under this Agreement. Without limiting the foregoing, on [* * *] Lilly shall provide Avidity with a written report summarizing its development activities and the results thereof. In addition, Lilly shall make available to Avidity such additional information about its development activities as may be reasonably requested by Avidity from time to time. Lillys obligations under this Section 5.3 shall cease upon the First Commercial Sale of a Product in the U.S.
5.4 Regulatory Responsibilities. Except as provided under a Research Plan, as between the Parties, Lilly shall be responsible for the preparation, submission, and maintenance of all Regulatory Filings and obtaining Regulatory Approvals (including the preparation and submission of the IND filing and for seeking IND approval) with respect to Compounds and Products developed and shall have sole control over all interactions with the applicable Regulatory Authority. Avidity shall reasonably cooperate with Lilly, at Lillys reasonable request and expense, with respect to any regulatory matters related to Compounds or Products. Lilly will own all right, title and interest in and to any and all Regulatory Filings and Regulatory Approvals for Compounds and Products and, as between the Parties, all such Regulatory Filings and Regulatory Approvals will be held in the name of Lilly, and Avidity shall execute all documents and take all actions as are necessary or reasonably requested by Lilly to vest such title in Lilly.
5.5 Adverse Event Reporting; Additional Agreement. Lilly shall establish, hold, and maintain the global safety database for Compounds and Products with respect to information on adverse events concerning the Compounds and Products, as and to the extent required by Applicable Law. Upon request of either Party, the Parties shall negotiate and agree on any additional agreements necessary for the development of Compounds and Products, including a pharmacovigilance agreement.
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ARTICLE 6
COMMERCIALIZATION
6.1 General. Lilly shall have the sole right and be responsible for, and shall bear all costs associated with, the Commercialization of Products, including manufacturing, distribution, marketing, and sales activities. Subject to the terms of this Agreement, all decisions concerning Commercialization of Products, including the marketing and sales of Products, and the design, price, and promotion of Products, is within the sole discretion of Lilly.
6.2 Diligence. Lilly shall use Commercially Reasonable Efforts to achieve a First Commercial Sale for each Product for which it obtains Regulatory Approval in [* * *].
ARTICLE 7
FEES, ROYALTIES, & PAYMENTS
7.1 Upfront Payment. As partial consideration for the rights granted by Avidity to Lilly pursuant to the terms of this Agreement, Lilly shall pay to Avidity a non-refundable, non-creditable payment equal to Twenty Million Dollars ($20,000,000) within [* * *] of the Effective Date.
7.2 Milestone Payments.
7.2.1 General. Lilly shall pay to Avidity certain non-refundable and non-creditable milestone payments (Milestone Payments) set forth in this Section 7.2: (a) within [* * *] following each of: (i) the first Product for each Collaboration Target achieving the development milestone event set forth in Section 7.2.2 (the Development Milestone Events); and (ii) the first Product for each Collaboration Target achieving the First Commercial Sale milestone event set forth in Section 7.2.3 (the First Commercial Sale Milestone Events); and (b) within [* * *] following the end of the Calendar Quarter of the first occurrence of all Products in each Program collectively achieving the commercial milestone events set forth in Section 7.2.4 (the Commercial Milestone Events). For clarity, no Milestone Payment is payable for subsequent or repeated achievements of the same Milestone Event with respect to the same Product, or any subsequent Products with respect to a Collaboration Target for which a Milestone Event has occurred. For avoidance of doubt, the maximum number of each of the Milestone Events achievable is up to six (6) (i.e., only once per each Collaboration Target subject to this Agreement).
7.2.2 Development Milestones. The Milestone Payments to be made by Lilly to Avidity pursuant to Section 7.2.1 with respect to the first Product for each Collaboration Target to achieve a below Development Milestone Event during the Term are as follows (each such Milestone Payment, a Development Milestone Payment):
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Development Milestone Event |
Milestone Payment | |
[***] |
$[***] | |
[***] |
$[***] | |
[***] |
$[***] |
The maximum total amount payable under this Section 7.2.2 shall not exceed [* * *] Dollars ($[* * *]) (i.e. [* * *] Dollars ($[* * *]) for each of up to six (6) Collaboration Targets). Notwithstanding the foregoing, if a Product for a particular Collaboration Target is discontinued prior to the First Commercial Sale of such Product, then [* * *]. For illustration purposes only, assume [* * *]. If (a) a Development Milestone Event for a Product Directed To a Collaboration Target is achieved and payment with respect to any previous Development Milestone Event for such Collaboration Target has not been made by Lilly to Avidity, then all previous Development Milestone Events for such Collaboration Target shall be deemed to have occurred; or (b) Lilly achieves Regulatory Approval for a Product Directed To a Collaboration Target and payment with respect to any Development Milestone Event for such Collaboration Target has not been made by Lilly to Avidity then all Development Milestone Events for such Collaboration Target shall be deemed to have occurred; and in each case of (a) and (b) Lilly shall pay Avidity all such unpaid payments with respect to such previous Development Milestone Events for such Collaboration Target at the same time that the Milestone Payment for the later Development Milestone Event is paid or within [* * *] of such Regulatory Approval.
7.2.3 First Commercial Sale Milestones. The Milestone Payments to be made by Lilly to Avidity pursuant to Section 7.2.1 with respect to the first Product for each Collaboration Target to achieve a below First Commercial Sale Milestone Event during the Term are as follows:
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First Commercial Sale Milestone Event |
Milestone Payment | |
[***] |
$[***] | |
[***] |
$[***] | |
[***] |
$[***] |
7.2.4 Commercial Milestones. The Milestone Payments to be made by Lilly to Avidity pursuant to Section 7.2.1 with respect to each Collaboration Target to achieve the below Commercial Milestone Events are as follows:
Commercial Milestone Event |
Milestone Payment | |
First Calendar Year in which annual Net Sales of all Products for such Collaboration Target exceed [***] Dollars ($[***]) |
$[***] | |
First Calendar Year in which annual Net Sales of all Products for such Collaboration Target exceed [***] Dollars ($[***]) |
$[***] | |
First Calendar Year in which annual Net Sales of all Products for such Collaboration Target exceed [***] Dollars ($[***]) |
$[***] | |
First Calendar Year in which annual Net Sales of all Products for such Collaboration Target exceed [***] Dollars ($[***]) |
$[***] |
7.3 Royalties on Products.
7.3.1 Royalty Term. Lilly shall pay Avidity royalties as set forth in this Section 7.3 on a Product-by-Product and country-by-country basis in the Territory during the period of time beginning on the First Commercial Sale of such Product in such country and continuing until the later of: (a) the expiration or abandonment of the last-to-expire Valid Claim in such country Covering such Product; or (b) ten (10) years after the First Commercial Sale of such Product in such country (the Royalty Term).
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7.3.2 Royalty Rates. Lilly shall pay Avidity non-refundable, non-creditable royalties as set forth below on aggregate annual Net Sales of all Products for each Collaboration Target in the Territory during the Royalty Term, as calculated by multiplying the applicable royalty rate set forth below by the corresponding portion of aggregate Net Sales of all Products for such Collaboration Target in such Calendar Year.
Aggregate Annual Net Sales of all Products for a Collaboration Target in the Territory |
Royalty Rate | |
[***] Dollars ($[***]) |
[***]% | |
[***] Dollars ($[***]) |
[***]% | |
[***] Dollars ($[***]) |
[***]% | |
[***] Dollars ($[***]) |
[***]% |
7.3.3 Valid Claim. In any Calendar Quarter during the Royalty Term for a Product for which there is no longer a Valid Claim of an Avidity Patent that Covers such Product in a country, the royalty rates provided in Section 7.3.2 for the Product will be reduced in such country by [* * *] percent ([* * *]%) for such Calendar Quarter (in addition to Sections 7.3.4 and 7.3.5, but subject to Section 7.3.6).
7.3.4 Biosimilar Products. On a country-by-country and Product-by-Product basis: (a) upon the first commercial sale of one or more Biosimilar Products with respect to a Product in any country in the Territory during the Royalty Term, the royalty rates provided in Section 7.3.2 for the Product will be reduced in such country by [* * *] percent ([* * *]%) (in addition to Sections 7.3.3 and 7.3.5, but subject to Section 7.3.6); and (b) from and after the first Calendar Quarter in which Biosimilar Products (individually or in the aggregate) have a market share of [* * *] percent ([* * *]%) or more in a given country (measured in local currency, over the Calendar Quarter, as reported by a customary market intelligence service used by Lilly), the royalty rates provided in Section 7.3.2 for the Product will be reduced in such country to [* * *] percent ([* * *]%) of the royalties otherwise payable under Section 7.3.2.
7.3.5 Third Party Payments. Lilly may deduct from any royalty payments to Avidity under this Section 7.3 for each Product (after application of Sections 7.3.3 and 7.3.4, but subject to Section 7.3.6) an amount equal to [* * *] percent ([* * *]%) of any royalties paid by Lilly to a Third Party in consideration for a right or license under such Third Partys interest in any Patents that would, absent such a right or license, be infringed by the researching, developing, making, having made, using, keeping, importing, exporting, offering for sale, sale, or other exploitation of the Compounds in the Field in the Territory.
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7.3.6 Cumulative Limit on Deductions. Notwithstanding anything to the contrary, in no circumstances will the royalties payable to Avidity under this Section 7.3 in any Calendar Quarter be reduced, as a result of Section 7.3.3, Section 7.3.4 and Section 7.3.5 in the aggregate below [* * *] percent ([* * *]%) of the royalties otherwise payable under Section 7.3.2.
7.3.7 Payment; Reports. Royalty payments due by Lilly to Avidity under this Section 7.3 will be calculated and reported [* * *]. All royalty payments due under this Section 7.3 shall be paid within [* * *] after the end of each Calendar Quarter and shall be accompanied by a report setting forth Net Sales and royalty for each Product by Lilly and its Affiliates and Sublicensees in the Territory.
7.4 Convertible Note. Pursuant to the terms of the Convertible Note Purchase Agreement between the Parties, Lilly will purchase a convertible promissory note from Avidity in the amount of Fifteen Million Dollars ($15,000,000); provided, that, in no event shall Lilly own more than twenty percent (20%) of the voting securities of Avidity or its Affiliates.
7.5 Method of Payment; Currency Conversion. Unless otherwise agreed by the Parties, all payments due under this Agreement shall be paid in Dollars by wire transfer or electronic funds transfer of immediately available funds to an account designated by the payee; provided however, that Lilly shall only be required to disburse funds to the payees jurisdiction of incorporation or to a jurisdiction in which the payee has a significant business presence. When conversion of payments from any currency other than Dollars is required, Lillys then-current standard exchange rate methodology will be employed for the translation of foreign currency sales into Dollars; provided, that this methodology is used by Lilly in the translation of its foreign currency operating results, is consistent with U.S. GAAP, is audited by Lillys independent certified public accountants in connection with the audit of the consolidated financial statements of Lilly, and is used for external reporting of foreign currency operating results.
7.6 Records and Audits. Lilly shall keep, and shall cause its Affiliates and Sublicensees to keep, complete and accurate records which may be necessary to ascertain properly and to verify the royalty payments due hereunder. Such records shall be kept for such period of time required by Applicable Laws, but no less than [* * *] following the end of the Calendar Quarter to which they pertain. Within the Term, Avidity shall not more than once each year have the right to have a Big 4 accounting firm (i.e., KPMG, PwC, Deloitte or Ernst & Young) reasonably acceptable to Lilly inspect Lillys records for the purpose of determining the accuracy of royalty payments for a period covering not more than [* * *] following the Calendar Quarter to which they pertain. No period will be audited more than once and each audit must be reasonable in scope. The independent, certified public accountant selected shall keep confidential any information obtained during such inspection and shall report to Avidity and Lilly only the amounts of Net Sales and royalties due and payable. Such audits may be exercised during normal business hours upon reasonable prior written notice to Lilly. Avidity shall bear the full cost of such audit unless such audit discloses an underpayment by Lilly of more than [* * *] percent ([* * *]%), and which underpayment is also at least [* * *] Dollars ($[* * *]), of the amount of royalties or other payments due under this Agreement for any applicable Calendar Quarter, in which case, Lilly shall bear the cost of such audit and shall remit to Avidity the amount of any underpayment within [* * *] of the date the auditors written report is received. Any overpayment by Lilly revealed by an audit shall be credited against future payments owed by Lilly to Avidity (and if no further payments are due, shall be refunded by Avidity at the request of Lilly within [* * *] of the receipt of the request).
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7.7 Late Payments. If any payment due under this Agreement is not paid when due in accordance with the applicable provisions of this Agreement, the payment shall accrue interest from the date due at the rate of prime (as reported in The Wall Street Journal (Eastern U.S. edition)) [* * *] or the maximum rate allowable by Applicable Law, whichever is less. The payment of such interest shall not limit the Party entitled to receive payment from exercising any other rights it may have as a consequence of the lateness of any payment.
7.8 Taxes.
7.8.1 Cooperation and Coordination. The Parties acknowledge and agree that it is their mutual objective and intent to minimize, to the extent feasible and in compliance with Applicable Laws, taxes payable with respect to their collaborative efforts under this Agreement and that they shall use reasonable efforts to cooperate and coordinate with each other to achieve such objective.
7.8.2 Payment of Tax. The upfront, milestones, royalties and other amounts payable by Lilly to Avidity to this Agreement (each, a Payment) shall be paid free and clear of any and all taxes, except for any withholding taxes required by Applicable Law. Except as provided in this Section 7.8.2. Avidity shall be solely responsible for paying any and all taxes (other than withholding taxes required by Applicable Law to be deducted from Payments and remitted by Lilly) levied on account of, or measured in whole or in part by reference to, any Payments it receives. Lilly shall deduct or withhold from the Payments any taxes that it is required by Applicable Law to deduct or withhold. Notwithstanding the foregoing, if Avidity is entitled under any applicable tax treaty to a reduction of rate of, or the elimination of, applicable withholding tax, it may deliver to Lilly or the appropriate Governmental Authority (with the assistance of Lilly to the extent that this is reasonably required and is expressly requested in writing) the prescribed forms necessary to reduce the applicable rate of withholding or to relieve Lilly of its obligation to withhold such tax and Lilly shall apply the reduced rate of withholding or dispense with withholding as the case may be; provided that Lilly has received evidence, in a form satisfactory to Lilly, of Aviditys delivery of all applicable forms (and, if necessary, its receipt of appropriate governmental authorization) at least [* * *] prior to the time Payments are due. If in accordance with the foregoing, Lilly withholds any amounts of tax, it shall pay to Avidity the balance when due, make timely payment to the proper tax authority of the withheld amount and send to Avidity proof of such payment within [* * *] following such payments.
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ARTICLE 8
INTELLECTUAL PROPERTY
8.1 Ownership of Intellectual Property.
8.1.1 Proprietary Technology. As between the Parties, and subject to the licenses granted under this Agreement, Avidity retains all of its rights, title and interests in and to the Avidity Technology existing as of the Effective Date (including the Avidity Proprietary Technology) and any Avidity Proprietary Technology created or acquired thereafter, and Lilly retains all of its rights, title and interests in and to the Lilly Technology existing as of the Effective Date (including the Lilly Proprietary Technology) and any Lilly Proprietary Technology created or acquired thereafter.
8.1.2 Inventorship. Inventorship as between the Parties will be determined in accordance with U.S patent laws. All such determinations shall be documented to ensure that the Patent claims in any divisional or continuation patent applications reflect appropriate inventorship.
8.1.3 Program Inventions.
(a) Ownership. The Parties anticipate to both contribute Proprietary Technology under the Research Plan to facilitate the innovation of technology and optimization of Compounds and Products under this Agreement. The Parties shall jointly own an undivided one-half interest in and to all Inventions and Know-How made during the Research Term in the course of performing the activities under the Research Plan (Program Inventions), regardless of inventorship and whether or not patentable. The Party making each such Program Invention shall and hereby does assign to the other Party an undivided one-half interest in such first Partys right, title, and interest in and to all Program Inventions made by or on behalf of such first Party. The inventing Party shall take (and cause its employees, agents, contractors and Sublicensees (if applicable) to take) such further actions reasonably requested by the other Party to evidence such assignment and to obtain Patent and other intellectual property rights protection for such Program Inventions. Subject to the licenses granted hereunder, each Party has full rights to exploit and license such Program Inventions (and any Patent rights therein), without any obligation or requirement of an accounting to the other Party and each Party hereby consents to such exploitation and licensing of the other Party for Program Inventions, provided, for clarity, that this consent does not extend to the practice of other Patent rights Controlled by the consenting Party. Furthermore, notwithstanding the foregoing, each Party agrees to hold Program Inventions (and any Know-How therein) in confidence subject to the same permitted disclosures set forth in Section 11.1.4 (applied mutatis mutandis to the Program Inventions consistent with each Partys rights to exploit the Program Inventions) and shall not disclose such Know-How to a Third Party unless under terms of confidentiality that preserve the Parties ability to pursue Patent rights as set forth under Section 8.2.
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(b) Independent Development. Nothing in this Agreement shall be construed as limiting either Partys right to research, develop, improve and in-license technology related to its Proprietary Technology outside the scope of this Agreement in its ordinary course of business, and any resulting inventions made by such Party outside the scope of this Agreement in its ordinary course of business shall be deemed such Partys Proprietary Technology and solely owned by such Party, and not be deemed Program Inventions. [* * *] shall not use its final decision making authority to expand the scope of the Research Plan to include activities that would ordinarily be conducted by [* * *] to improve the [* * *] except when the inclusion of such activities under the Research Plan is consistent with the objective(s) of the applicable Research Plan (as set forth in such Research Plan).
(c) Contribution of Licensed Proprietary Technology. Each Party shall inform the other Party in writing, prior to contributing to Research to be conducted under any Research Plan, any portion of its Proprietary Technology that is in-licensed from a Third Party, the contribution of which would prevent or conflict with the ownership and use rights with respect to Patents and Know-How contemplated by this Agreement; however, for avoidance of doubt, this Section 8.1.3 shall not limit or modify Lillys ability to license Patents pursuant to Section 7.3.5.
8.1.4 Assignment Obligation. Each Party shall cause all employees, independent contractors, consultants, and others who perform activities for such Party under this Agreement to be under an obligation to assign (or, if such Party is unable to cause such person or entity to agree to such assignment obligation despite such Party using reasonable efforts to negotiate such assignment obligation, provide a license, preferably exclusive, under) to such Party their rights in and to any Inventions and all intellectual property rights therein, except where Applicable Law requires otherwise and except in the case of governmental, not-for-profit and public institutions that have standard policies against such an assignment (in which case a Party shall obtain a suitable license, preferably exclusive, or right to obtain such a license). Each Party shall use reasonable efforts to promptly disclose to the other Party all Inventions, including any invention disclosures, or other similar documents, submitted to it by its employees, agents or independent contractors describing such Inventions, and all information relating to such Inventions to the extent necessary or useful for the preparation, filing and maintenance of any Patent with respect to such Invention.
8.2 Patent Prosecution and Maintenance.
8.2.1 Patent Representatives. Each Party shall designate to the other Party in writing a patent Prosecution and Maintenance representative to liaise with the other Partys Prosecution and Maintenance representative with respect to the Prosecution and Maintenance of Patents under this Section 8.2. Each Party may update its patent Prosecution and Maintenance representative at any time upon written notice to the other Party.
8.2.2 Product-Specific Patents. As between the Parties: (a) Lilly has the first right, but not the obligation, to Prosecute and Maintain any Avidity Patents that include a specific claim to a Compound or a Product and/or the specific component of the Avidity Proprietary Technology that is incorporated in such Compound or Product (the Product-Specific Patents) at Lillys sole cost and expense; and (b) Avidity has the first right, but not the obligation, to Prosecute and Maintain any Avidity Patents that are not Product-Specific Patents (the Avidity-Controlled Patents). For clarity, Product-Specific Patents include, but are not limited to composition of matter, uses, formulations, doses, dosing regimens, and manufacturing
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patents. The Party handling the Prosecution and Maintenance of a given Avidity Patent under this Section 8.2.2 (the Prosecuting Party) shall keep the other Party reasonably informed of the status of the applicable Avidity Patent and shall promptly provide the other Party with all material correspondence received from any patent authority in connection therewith. In addition, the Prosecuting Party shall promptly provide the other Party with drafts of all proposed material filings and correspondence to any patent authority with respect to the applicable Avidity Patent for the other Partys review and comment prior to the submission of such proposed filings and correspondences, and the Prosecuting Party shall consider the other Partys reasonable comments in good faith. If Lilly is the Prosecuting Party, Lilly shall Prosecute and Maintain any Avidity Patents in a manner that is consistent with Lillys overall patent strategy. The Prosecuting Party shall notify the other Party of its intention to suspend or cease any Prosecution and Maintenance of any Avidity Patent. The Prosecuting Party shall provide such notice at least [* * *] prior to any filing or payment due date, or any other due date that requires action, in connection with such Avidity Patent. In such event, the Prosecuting Party shall permit the other Party, at the other Partys discretion and at its sole expense, to continue Prosecution and Maintenance of such Avidity Patent; provided, that in the case where Lilly is the Prosecuting Party and Avidity desires to continue Prosecution and Maintenance of such Avidity Patent, Avidity shall not continue such Prosecution and Maintenance if Lilly reasonably objects to such Prosecution or Maintenance.
8.2.3 Program Patents. Subject to [* * *] final decision making authority pursuant to Section 2.7, the Working Group for patent prosecution shall determine which Party has the first right, but not the obligation, to Prosecute and Maintain the Program Patents other than Product-Specific Patents, at such Partys sole cost and expense. The Prosecuting Party shall keep the other Party reasonably informed of the status of the Program Patents and shall promptly provide such other Party with all material correspondence received from any patent authority in connection therewith. In addition, the Prosecuting Party shall promptly provide the other Party with drafts of all proposed material filings and correspondence to any patent authority with respect to the Program Patents for such other Partys review and comment prior to the submission of such proposed filings and correspondences, and the Prosecuting Party shall consider the other Partys reasonable comments in good faith. The Prosecuting Party shall notify the other Party of its intention to suspend or cease any Prosecution and Maintenance of any Program Patent at least [* * *] prior to any filing or payment due date, or any other due date that requires action, in connection with such Program Patent. In such event, the Prosecuting Party shall permit the other Party, at its discretion and at its sole expense, to continue Prosecution and Maintenance of such Program Patent; provided, that in the case where Lilly is the Prosecuting party and Avidity desires to continue Prosecution and Maintenance of such Program Patent, Avidity shall not continue such prosecution and maintenance if Lilly reasonably objects to the prosecution or maintenance by Avidity of such Program Patent.
8.2.4 Lilly Patents. As between the Parties, Lilly has the sole responsibility, at Lillys discretion and at Lillys sole cost and expense, to Prosecute and Maintain all Lilly Patents.
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8.2.5 Separation of Patent Claims. If a Party determines that an application for a Patent filed, or sought to be filed, by the other Party contains a claim or claims that Cover both such determining Partys Proprietary Technology and/or any Program Invention, the Parties agree that, to the extent practicable, such application shall be divided into two (2) or more Patent applications, so that each application shall contain claims that cover only one of Avidity Proprietary Technology or Lilly Proprietary Technology (as applicable), on the one hand, or the Program Invention(s), on the other hand. If such division is not practicable, or a single claim covers both Lilly Proprietary Technology or Avidity Proprietary Technology (as applicable), on the one hand, and a Program Invention, on the other hand, such Patent application shall be deemed to be within the Program Inventions and subject to the provisions of Section 8.1.3(a).
8.2.6 Cooperation of the Parties. Each Party shall cooperate fully with the other Party, through the patent prosecution Working Group, in the Prosecution and Maintenance of Patents under this Section 8.2 at its own cost (except as expressly set forth otherwise in this Article 8), including by: (a) executing all papers and instruments, or requiring its employees or contractors, to execute such papers and instruments, to enable the other Party to apply for and to Prosecute and Maintain such Patents in any country as permitted by this Section 8.2; and (b) promptly informing the other Party of any matters coming to such Partys attention that may affect the Prosecution and Maintenance of any such Patents.
8.3 Infringement or Misappropriation by Third Parties.
8.3.1 Notice. Each Party shall notify the other within [* * *] of becoming aware of any alleged or threatened infringement by a Third Party of any of the Avidity Patents, Lilly Patents, or Program Patents, which infringing activity involves the using, making, importing, offering for sale, or selling a Compound or Product, in each case in the Field in the Territory, and any related declaratory judgment, opposition, or similar action alleging the invalidity, unenforceability or non-infringement of any of the Avidity Patents, Lilly Patents, or Program Patents (collectively Infringement).
8.3.2 Avidity-Controlled Patents. As between the Parties, Avidity has the sole right to bring and control any legal action in connection with any Infringement of the Avidity-Controlled Patents at its own expense. Avidity shall keep Lilly reasonably informed of the status of the applicable Avidity-Controlled Patents. Lilly may, at its own expense, be represented in any such action by counsel of its own choice. If Avidity does not bring such legal action within [* * *] after the notice provided pursuant to Section 8.3.1, Lilly may bring and control any legal action in connection with such Infringement of such Avidity-Controlled Patent at its own expense as it reasonably determines appropriate so long as Avidity does not reasonably object to such action.
8.3.3 Product-Specific Patents. As between the Parties, Lilly has the first right to bring and control any legal action in connection with any Infringement of any Product-Specific Patents at its own expense. Lilly shall keep Avidity reasonably informed of the status of such enforcement efforts for the Product-Specific Patents and shall consider in good faith Aviditys comments thereon. Lilly shall provide Avidity with drafts of all material papers to be filed with the court and shall in good faith consider all reasonable comments thereto by Avidity before filing such papers. Avidity may, at its own expense, be represented in any such action by counsel of its own choice. If Lilly does not bring such legal action within [* * *] after the notice provided pursuant to Section 8.3.1, Avidity may bring and control any legal action in connection with such Infringement of such Product-Specific Patent at its own expense as it reasonably determines appropriate so long as Lilly does not reasonably object to such action.
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8.3.4 Program Patents. As between the Parties, Lilly has the first right to bring and control any legal action in connection with any Infringement of any Program Patents at its own expense as it reasonably determines appropriate. Lilly shall keep Avidity reasonably informed of the status of such enforcement efforts for the Program Patents and shall consider in good faith Aviditys comments thereon. Lilly shall provide Avidity with drafts of all material papers to be filed with the court and shall in good faith incorporate all reasonable comments thereto by Avidity before filing such papers. Avidity may, at its own expense, be represented in any such action by counsel of its own choice. If Lilly does not bring such legal action within [* * *] after the notice provided pursuant to Section 8.3.1, Avidity may bring and control any legal action in connection with such Infringement of any Program Patents at its own expense as it reasonably determines appropriate so long as Lilly does not reasonably object to such action.
8.3.5 Lilly Patents. Lilly has the sole right to initiate any proceedings or take other appropriate actions against an Infringement of any Lilly Patent (excluding the Program Patents, which are separately addressed in Section 8.3.4) or to defend against any challenge of a Lilly Patent (excluding the Program Patents, which are separately addressed in Section 8.3.4).
8.3.6 Allocation of Recoveries. Any recoveries resulting from enforcement action relating to a claim of Infringement shall be first applied against payment of each Partys costs and expenses in connection therewith. The enforcing Party will retain any such recoveries in excess of such costs and expenses, provided that if Lilly is the enforcing Party, then such excess recoveries are deemed [* * *].
8.3.7 Cooperation. At the request and expense of the Party bringing an action under this Section 8.3, the other Party shall provide reasonable assistance in connection therewith, including by executing reasonably appropriate documents, cooperating in discovery and joining as a party to the action if required by Applicable Law to pursue such action. In connection with any such enforcement action, the Party bringing the action shall not enter into any settlement admitting the invalidity or non-infringement of, or otherwise impairing the other Partys rights in the applicable Patents without the prior written consent of the other Party.
8.4 Defense and Settlement of Third Party Claims. Each Party shall promptly notify the other in writing of: (a) any allegation by a Third Party that the activity of either of the Parties pursuant to this Agreement infringes or may infringe the intellectual property rights of such Third Party; or (b) any declaratory judgment action that is brought naming either Party as a defendant and alleging invalidity of any of the Lilly Patents, Avidity Patents, or Program Patents. Avidity has the sole right to control any defense of any such claim involving alleged infringement of Third Party rights by Aviditys activities at its own expense and by counsel of its own choice, and Lilly may, at its own expense, to be represented in any such action by counsel of its own choice. Lilly has the sole right to control any defense of any such claim involving alleged infringement of Third Party rights by Lillys activities at its own expense and by counsel of its own choice, and Avidity may, at its own expense, to be represented in any such action by counsel of its own choice. Neither Party may settle any patent infringement litigation under this Section 8.4 in a manner that admits the invalidity or unenforceability of the other Partys Patents or a Program Patent or imposes on the other Party restrictions or obligations or other liabilities, without the written consent of such other Party, which consent shall not be unreasonably withheld, conditioned, or delayed.
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8.5 Patent Extension. The Parties shall cooperate in determining which Patent claiming or covering a Compound or Product should be extended, and thereafter the Parties shall cooperate in obtaining patent term restorations, supplemental protection certificates or their equivalents, and other forms of patent term extensions for a given Compound or Product with respect to any applicable Avidity Patent, Lilly Patent, or Program Patent in any country or region where applicable. [* * *] shall have final decision making authority with respect to decisions regarding patent term extension with respect to Product-Specific Patents, Lilly Patents and Program Patents.
8.6 CREATE Act. It is the Parties intention that this Agreement is a joint research agreement as that phrase is defined in 35 U.S.C. § 102(c) as amended by the Cooperative Research and Technology Enhancement (CREATE) Act, including the provisions of 35 U.S.C. § 102(b)(2)(c). The Parties agree to cooperate and to take reasonable actions to maximize the protections available for the Compounds and Products under such safe harbor provisions.
8.7 Trademarks. Lilly shall have the right to select, and will be free, in its sole discretion, to use and to register in any trademark office in the Territory, any trademark for use with a Compound or Product. As between the Parties, Lilly shall own all right, title and interest in and to any such trademarks adopted by Lilly for use with a Compound and Product, and is responsible for the registration, filing, maintenance and enforcement thereof.
ARTICLE 9
REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Mutual Representations and Warranties. Each of Lilly and Avidity represent and warrant, as of the Effective Date, that:
9.1.1 it is duly organized and validly existing under in the Applicable Laws of the jurisdiction of its incorporation or formation, as applicable, has full corporate, limited liability company or other power and authority, as applicable, to enter into this Agreement and to carry out the provisions hereof, and has sufficient facilities, experienced personnel or other capabilities (including via Affiliates and/or Third Parties) to enable it to perform its obligations under this Agreement;
9.1.2 it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the individual executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate, limited liability company or other action, as applicable; and
9.1.3 this Agreement is legally binding upon it and enforceable in accordance with its terms (except as the enforceability thereof may be limited by bankruptcy, bank moratorium or similar laws affecting creditors rights generally and laws restricting the availability of equitable remedies and may be subject to general principles of equity whether or
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not such enforceability is considered in a proceeding at law or in equity) and the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate action and do not and will not: (a) conflict with, or constitute a default or result in a breach under, any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, or violate any Applicable Law; or (b) require any consent or approval of its stockholders or similar.
9.2 Avidity Representations and Warranties. Avidity represents and warrants to Lilly that, as of the Effective Date:
9.2.1 No Targets Encumbered. There are no Targets that are subject to an executed agreement between Avidity and a Third Party or Aviditys commitment to negotiate an agreement with a Third Party that would prevent or conflict with the inclusion of the Target as a Collaboration Target under this Agreement on an exclusive basis as set forth in Section 3.5.
9.2.2 No Grants that Conflict with this Agreement. Avidity and its Affiliates have not granted, and will not grant during the Term, any rights (or other encumbrances) to any Third Party to Avidity Technology that prevent or conflict with the rights granted to Lilly hereunder.
9.2.3 Control over Know-How and Patents. Avidity has Control over all Know-How and Patent rights owned by it or its Affiliates as of the Effective Date that are necessary or reasonably useful for the Research, development, registration, manufacturing (including formulation) or Commercialization of the Compounds and Products as known to be contemplated by this Agreement as of the Effective Date.
9.2.4 Existing Patents.
(a) All Patent rights contained in the Avidity Technology existing as of the Effective Date that are issued or subject to a pending application for issuance (the Existing Patents) are listed on Exhibit 1.14 and all such Existing Patents are: (i) to the extent issued (unless otherwise indicated on Exhibit 1.14), subsisting and not invalid or unenforceable, in whole or in part; (ii) solely and exclusively owned or exclusively licensed to Avidity, free of any encumbrance, lien or claim of ownership by any Third Party; (iii) to the extent subject to a pending application for issuance, being diligently prosecuted in the respective patent offices in which such applications have been filed in accordance with Applicable Law and, to Aviditys knowledge, Avidity and its Affiliates have presented all relevant references, documents and information to the relevant patent examiner at the relevant patent office; and (iv) to Aviditys knowledge, filed and maintained properly and correctly, and all applicable fees applicable thereto have been paid on or before the due date for payment.
(b) To Aviditys knowledge, neither Avidity nor any of its Affiliates have taken any action that would render any invention claimed in the Existing Patents unpatentable.
(c) The Existing Patents represent all Avidity Patents that relate to the Avidity Technology or the exploitation thereof as of the Effective Date.
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(d) To Aviditys knowledge, other than the rights granted under this Agreement, no rights or licenses are required under any Patent rights to practice the Avidity Technology as contemplated in the Research Plan as of the Effective Date, or to Research, develop, manufacture (including to formulate), Commercialize or otherwise exploit the Products as contemplated herein by reason of the incorporation of Avidity Technology in such Products.
9.2.5 No Third Party Agreements. There are no license or other agreements with Third Parties regarding the exploitation of any Avidity Technology or other materials contemplated to be provided by Avidity to Lilly hereunder, to which Avidity or its Affiliate is a party.
9.2.6 Litigation and Actions Relating to Intellectual Property. Avidity: (a) has not received any written notice of any threatened claims or litigation seeking to invalidate or otherwise challenge the Avidity Technology, including the Avidity Patents, or Aviditys or its Affiliates rights therein; and (b) is not aware of any pending or threatened action, suit, proceeding or claim by a Third Party asserting that Avidity or any of its Affiliates is infringing or has misappropriated or otherwise is violating any Patent right, trade secret or other proprietary right of any Third Party as would reasonably be expected to impair the ability of Avidity to fulfill any of its obligations under this Agreement.
9.2.7 Other Material Claims and Actions. There are no claims, actions, or proceedings pending or, to Aviditys knowledge, threatened by any Third Party; nor, to Aviditys knowledge, are there any formal inquiries initiated or written notices received that may lead to the institution of any such legal proceedings, in each case (or in aggregate) against Avidity or its properties, assets or business, which if adversely decided, would, individually or in the aggregate, have a material adverse effect on, or prevent Aviditys ability to conduct the Research or to grant the licenses or rights granted to Lilly under this Agreement.
9.2.8 Assignment by Employees, Agents and Consultants. Avidity has obtained from each of its current employees, consultants and contractors, and will obtain from each of its future employees, consultants and contractors, in each case who perform research or development activities pursuant to this Agreement, written agreements containing obligations of confidentiality and non-use and an assignment to Avidity of all inventions (and all of such Persons rights thereto) for which Avidity or Lilly is intended to have ownership or license rights under this Agreement such that no such employee, contractor or consultant shall retain any rights to such inventions that would prevent or conflict with Lillys rights of ownership or use of such inventions contemplated by this Agreement.
9.2.9 No Government Funding. The inventions claimed or covered by the Avidity Patents: (a) were not conceived, discovered, developed or otherwise made in connection with any research activities funded, in whole or in part, by the federal government of the United States of America or any agency thereof; (b) are not a subject invention as that term is described in 35 U.S.C. Section 201(e) and (c) are not otherwise subject to the provisions of the Patent and Trademark Law Amendments Act of 1980, as amended, codified at 35 U.S.C. §§ 200-212, as amended, as well as any regulations promulgated pursuant thereto, including in 37 C.F.R. Part 401.
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9.2.10 Regulatory Documentation. Avidity and its Affiliates have generated, prepared, maintained and retained all Regulatory Documentation that is required to be maintained or retained pursuant to and in accordance with, to the extent applicable, good laboratory and clinical practice and Applicable Law and all such information is true, complete and correct in all material respects and what it purports to be. Regulatory Documentation means all: (a) applications (including all INDs and applications for Regulatory Approval), registrations, licenses, authorizations and approvals (including Regulatory Approvals); (b) correspondence and reports submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority) and all supporting documents with respect thereto, including all adverse event files and complaint files; (c) supplements or changes to any of the foregoing following Regulatory Approval; and (d) clinical and other data, including Clinical Trial data, contained or relied upon in any of the foregoing; in each case ((a), (b), (c) and (d)) relating to a Collaboration Target and Compounds Directed Against a Collaboration Target.
9.2.11 Balance Sheet. Avidity has less than sixteen million nine hundred thousand Dollars ($16,900,000) of total assets as stated on Aviditys last regularly prepared balance sheet dated December 31, 2018.
9.3 Mutual Covenants.
9.3.1 Employees, Consultants and Contractors. Each Party covenants that it has obtained or will obtain written agreements from each of its employees, consultants and contractors who perform research or development activities pursuant to this Agreement, which agreements will obligate such persons to obligations of confidentiality and non-use and to assign inventions in a manner consistent with the provisions of this Agreement.
9.3.2 Debarment. Each Party represents, warrants and covenants to the other Party that neither it nor its officers, employees, agents, consultants or any other person used by such Party in the performance of the respective research and development activities under this Agreement is: (a) debarred or disqualified under the U.S. Federal Food, Drug and Cosmetic Act; (b) listed by any government or regulatory agencies as ineligible to participate in any government healthcare programs or government procurement or non-procurement programs (as that term is defined in 42 U.S.C. § 1320a-7b(f)), or excluded, debarred, suspended or otherwise made ineligible to participate in any such program; or (c) convicted of a criminal offense related to the provision of healthcare items or services, or is subject to any such pending action. Each Party will not during the Term knowingly, employ or use, directly or indirectly, including through Affiliates the services of any such person. In the event that either Party becomes aware of the debarment or disqualification or threatened debarment or disqualification of any person providing services to such Party, directly or indirectly, including through Affiliates or, in the case of Lilly, Sublicensees, which directly or indirectly relate to activities contemplated by this Agreement, such Party shall promptly notify the other Party in writing and such Party shall cease employing, contracting with, or retaining any such person to perform any such services.
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9.4 Compliance.
9.4.1 Compliance with this Agreement. Each of the Parties shall, and shall cause their respective Affiliates to, comply in all material respects with the terms of this Agreement.
9.4.2 Compliance with Applicable Laws. Each Party covenants to the other that in the performance of its obligations under this Agreement, such Party shall comply with, and shall cause its Affiliates and its and its Affiliates employees and contractors to comply, with all Applicable Laws. No Party shall, or shall be required to, undertake any activity under or in connection with this Agreement which violates, or which it believes, in good faith, may violate, any Applicable Laws.
9.4.3 Compliance with Party Specific Regulations. In carrying out their respective obligations under this Agreement, the Parties agree to cooperate with each other as may reasonably be required to help ensure that each is able to fully meet its obligations with respect to all judgments, decrees, orders or similar decisions issued by any Governmental Authority specific to a Party, and all consent decrees, corporate integrity agreements, or other agreements or undertakings of any kind by a Party with any Governmental Authority, in each case as the same may be in effect from time to time and applicable to a Partys activities contemplated by this Agreement (the Party Specific Regulations). Neither Party shall be obligated to pursue any course of conduct that would result in such Party being in material breach of any Party Specific Regulation applicable to it; provided that in the event that a Party refuses to fulfill its obligations under this Agreement in any material respect on such basis, the other Party shall have the right to terminate this Agreement in accordance with Section 12.2; however, under such circumstances, such termination shall be the sole remedy for such terminating Party and such terminating Party shall not be entitled to any other remedy under law or equity. All Party Specific Regulations are binding only in accordance with their terms and only upon the Party to which they relate.
9.4.4 Compliance with Internal Compliance Codes. All Internal Compliance Codes shall apply only to the Party to which they relate. The Parties agree to cooperate with each other to help insure that each Party is able to comply with the substance of its respective Internal Compliance Codes and, to the extent practicable, each Party shall operate in a manner consistent with its Internal Compliance Codes applicable to its performance under this Agreement. Internal Compliance Codes, as used in this Section 9.4.4, means a Partys internal policies and procedures intended to ensure that a Party complies with Applicable Laws, Party Specific Regulations, and such Partys internal ethical, medical and similar standards.
9.4.5 Compliance with Anti-Corruption Laws. In connection with this Agreement, the Parties shall comply with all applicable local, national, and international laws, regulations, and industry codes dealing with government procurement, conflicts of interest, corruption or bribery, including, if applicable, the U.S. Foreign Corrupt Practices Act of 1977, as amended, and any laws enacted to implement the Organisation of Economic Cooperation and Development Convention on Combating Bribery of Foreign Officials in International Business Transactions.
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9.4.6 Prohibited Conduct. Without limiting the other obligations of the Parties set forth in this Section 9.4, each Party covenants to the other that, as of the Effective Date and in the performance of its obligations under this Agreement through the expiration and termination of this Agreement, such Party and, to its knowledge, its Affiliates and its and its Affiliates employees and contractors, in connection with the performance of their respective obligations under this Agreement, have not made, offered, given, promised to give, or authorized, and will not make, offer, give, promise to give, or authorize, any bribe, kickback, payment or transfer of anything of value, directly or indirectly through Third Parties, to any Government Official for the purpose of: (a) improperly influencing any act or decision of the Person or Government Official; (b) inducing the Person or Government Official to do or omit to do an act in violation of a lawful or otherwise required duty; (c) securing any improper advantage; or (d) inducing the Person or Government Official to improperly influence the act or decision of any organization, including any government or government instrumentality, to assist any Party in obtaining or retaining business. For the purpose of this Section Government Official means: (x) any officer, employee (including physicians, hospital administrators, or other healthcare professionals), agent, representative, department, agency, de facto official, representative, corporate entity, instrumentality or subdivision of any government, military or international organization, including any ministry or department of health or any state-owned or affiliated company or hospital; (y) any candidate for political office, any political party or any official of a political party, in each case for the purpose of obtaining or retaining business for or with, or directing business to, any Person, including either Party; or (z) any Person acting in an official capacity on behalf of any of the foregoing.
9.5 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS Article 9, NEITHER PARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR VALIDITY OF PATENT CLAIMS. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY EITHER PARTY THAT EITHER PARTY WILL BE SUCCESSFUL IN OBTAINING ANY PATENTS OR THAT ANY PATENTS WILL ISSUE BASED ON A PENDING APPLICATION. WITHOUT LIMITING THE RESPECTIVE RIGHTS AND OBLIGATIONS OF THE PARTIES EXPRESSLY SET FORTH HEREIN, EACH PARTY SPECIFICALLY DISCLAIMS ANY GUARANTEE THAT THE PRODUCTS WILL BE SUCCESSFUL, IN WHOLE OR IN PART.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnity.
10.1.1 By Avidity. Subject to Section 10.1.3, Avidity shall defend, indemnify and hold harmless Lilly and its Affiliates, and their respective directors, officers, employees, and agents (each, a Lilly Indemnitee) from and against any and all costs, fees, expenses, losses, liabilities, and damages, including reasonable legal expenses and attorneys fees (collectively, Losses) to which any Lilly Indemnitee may become subject as a result of any claim, demand,
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action or other proceeding by any Third Party (a Claim) to the extent such Losses arise out of: (a) the gross negligence or willful misconduct of Avidity or its Affiliates in connection with its activities under this Agreement; (b) the breach of this Agreement or the representations, warranties, and covenants made hereunder by Avidity; or (c) the research, development, or use of any Compound or Product by or on behalf of Avidity or its Affiliates (including from product liability and intellectual property infringement claims, but except to the extent resulting from the incorporation of Lilly Proprietary Technology therein); except, in each case, to the extent such Losses result from matters subject to clause (a), (b), or (c) of Section 10.1.2.
10.1.2 By Lilly. Subject to Section 10.1.3, Lilly shall defend, indemnify and hold harmless Avidity, its Affiliates, and their respective directors, officers, employees and agents (each, an Avidity Indemnitee) from and against any and all Losses to which any Avidity Indemnitee may become subject as a result of any Claim to the extent such Losses arise out of: (a) the gross negligence or willful misconduct of Lilly, its Affiliates, or their respective Sublicensees in connection with its activities under this Agreement; (b) the breach of this Agreement or the representations, warranties and covenants made hereunder by Lilly; or (c) the research, development, manufacture, use, offer for sale, sale, or other exploitation of any Compound or Product by or on behalf of Lilly, its Affiliates, or their respective Sublicensees (including from product liability and intellectual property infringement claims, but except to the extent resulting from the incorporation of Avidity Proprietary Technology therein); except, in each case, to the extent such Losses result from matters subject to clause (a), (b) or (c) of Section 10.1.1.
10.1.3 Procedure. A Party that intends to claim indemnification under this Article 10 (the Indemnitee) shall promptly notify the Indemnitor (the Indemnitor) in writing of any Claim in respect of which the Indemnitee intends to claim such indemnification. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any action with respect to a Claim shall only relieve the Indemnitor of its indemnification obligations under this Article 10 if and to the extent the Indemnitor is actually and materially prejudiced thereby. The Indemnitor has sole control of the defense or settlement thereof. The Indemnitee shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action with respect to a Claim covered by this indemnification. The Indemnitee may participate at its expense in the Indemnitors defense of and settlement negotiations for any Claim with counsel of the Indemnitees own selection. The Indemnitor shall not settle any Claim without the prior written consent of the Indemnitee, not to be unreasonably withheld. So long as the Indemnitor is actively defending the Claim in good faith, the Indemnitee shall not settle or compromise any such Claim without the prior written consent of the Indemnitor. If the Indemnitor does not assume and conduct the defense of the Claim as provided above: (a) the Indemnitee may defend against, consent to the entry of any judgment, or enter into any settlement with respect to such Claim in any manner the Indemnitee may deem reasonably appropriate (and the Indemnitee need not consult with, or obtain any consent from, the Indemnitor in connection therewith); and (b) the Indemnitor shall remain responsible to indemnify the Indemnitee as provided in this Article 10.
10.2 Insurance. During the Term, each Party shall maintain such types and amounts of liability insurance (including self-insurance) as is normal and customary in the industry generally for similarly situated parties and adequate to cover its obligations under this Agreement, and Avidity will upon request provide Lilly with a certificate of insurance in that regard, along with any amendments and revisions thereto.
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ARTICLE 11
CONFIDENTIALITY
11.1 Confidential Proprietary Information.
11.1.1 Confidential Proprietary Information. In connection with this Agreement, Lilly may disclose certain confidential information that is Lilly Proprietary Technology to Avidity and Avidity may disclose certain confidential information that is Avidity Proprietary Technology to Lilly (such confidential information, Confidential Proprietary Information). Without limiting the foregoing, the terms of this Agreement are the Confidential Proprietary Information of both Parties and shall be treated confidentially by each of the Parties, subject to the exceptions set forth in Section 11.1.6. Information exchanged by the Parties pursuant to the Confidential Disclosure Agreement shall be governed by such Confidential Disclosure Agreement, provided that any such information that is subsequently exchanged by the Parties under this Agreement shall, from that time, be governed by the terms of this Agreement (including the requirement to mark or prominently designate Avidity Proprietary Technology or Lilly Proprietary Technology as such, in accordance with Sections 1.15 and 1.78, at the time of the subsequent exchange or immediately thereafter).
11.1.2 Restrictions. A Party (the Receiving Party) that receives Confidential Proprietary Information from the other Party (the Disclosing Party) shall keep all the Disclosing Partys Confidential Proprietary Information in confidence with the same degree of care with which the Receiving Party holds its own confidential information (but in no event less than a commercially reasonable degree of care). A Receiving Party shall not use the Disclosing Partys Confidential Proprietary Information except in connection with the performance of its obligations and exercise of its rights under this Agreement.
11.1.3 Exceptions. The obligations of confidentiality and restriction on use of Confidential Proprietary Information under Section 11.1.2 do not apply to any information that the Receiving Party can prove by competent written evidence: (a) is now, or hereafter becomes, through no act or failure to act on the part of the Receiving Party, generally known or available to the public; (b) is known by the Receiving Party at the time of receiving such information, other than by previous disclosure of the Disclosing Party, or its Affiliates, employees, agents, consultants, or contractors; (c) is hereafter furnished to the Receiving Party without restriction by a Third Party who has no obligation of confidentiality or limitations on use with respect thereto, as a matter of right; or (d) is independently discovered or developed by the Receiving Party without the use of Confidential Proprietary Information belonging to the Disclosing Party. Specific information shall not be deemed to be within any of the foregoing exclusions merely because it is embraced by more general information falling within those exclusions.
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11.1.4 Permitted Disclosures. The Receiving Party may disclose Confidential Proprietary Information belonging to the Disclosing Party as expressly permitted by this Agreement or if and to the extent such disclosure is reasonably necessary in the following instances:
(a) Prosecution and Maintenance of Patents as permitted by this Agreement;
(b) Regulatory Filings for Product that such Party has a license or right to develop hereunder in a given country or jurisdiction;
(c) prosecuting or defending litigation as permitted by this Agreement;
(d) complying with applicable court orders or governmental regulations, including mutually recognized securities laws;
(e) in response to a valid request by a U.S., state, foreign, provincial, or local tax authority, in which case either Party may disclose, a copy of this Agreement (including any Exhibits, schedules, ancillary agreements, and amendments hereto);
(f) disclosure to its and its Affiliates employees, consultants, contractors and agents, and to Sublicensees (in the case of Lilly), in each case on a need-to-know basis in connection with the research, development, making, having made, use, keeping, import, export, offering for sale, selling, or otherwise exploiting Products in the Field in the Territory, and commercialization of the Product in accordance with the terms of this Agreement, in each case under written obligations of confidentiality and non-use at least as stringent as those herein; and
(g) disclosure to potential and actual investors, acquirers, licensees and other financial or commercial partners solely for the purpose of evaluating or carrying out an actual or potential investment, acquisition, or collaboration, in each case under written obligations of confidentiality and non-use at least as stringent as those herein; provided, however, that with respect to disclosure to actual or bona fide potential investors, such disclosure is under a written obligation of confidentiality that is consistent with market terms, including a shorter period of time during which such information must be held confidential.
Notwithstanding the foregoing, if a Party is required to make a disclosure of the other Partys Confidential Proprietary Information pursuant to Section 11.1.4(c) or (d), it shall, except where impracticable, give reasonable advance notice to the other Party of such disclosure and use efforts to secure confidential treatment of such Confidential Proprietary Information at least as diligent as such Party would use to protect its own Confidential Proprietary Information, but in no event less than reasonable efforts. Any information disclosed pursuant to Section 11.1.4(c) or (d) remains Confidential Proprietary Information and subject to the restrictions set forth in this Agreement, including the foregoing provisions of this Article 11.
11.1.5 Public Domain Information and Residual Knowledge. Nothing in this Agreement shall prevent a Party from using any Know-How that is in the public domain. A Party shall also not be restricted under, and shall not be in breach of, this Agreement from using, within or outside this Agreement and for any purpose, any general knowledge, skill, and expertise acquired by its employees (or its Affiliates employees) in their performance of this
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Agreement (Residuals) solely to the extent such Residuals shall have been retained in the unaided memory (without intentional memorization) of such employees in intangible form and without use by the Party or such employees of tangible copies of any Confidential Proprietary Information of the other Party; provided that this provision will not be deemed in any event to provide any right to infringe the Patent rights of the other Party or of Third Parties that have licensed or provided materials to the other Party; provided, further, that a Partys use of such Residuals is on an as is, where is basis, with all faults and all representations and warranties disclaimed and at such Partys sole risk.
11.1.6 Disclosure of Agreement. Notwithstanding the foregoing, either Party or its Affiliates may disclose the relevant terms of this Agreement: (a) to the extent required or advisable to comply with the rules and regulations promulgated by the U.S. Securities and Exchange Commission or any equivalent governmental agency in any country in the Territory, provided that such Party shall submit a confidential treatment request in connection with such disclosure and shall submit with such confidential treatment request only such redacted form of this Agreement as may be mutually agreed in writing by the Parties; (b) upon request from a Governmental Authority (such as a tax authority), provided the disclosing Party uses reasonable efforts to ensure the Governmental Authority maintains such terms as confidential; (c) to applicable licensors, to the extent necessary to comply with the terms of any Third Party license agreement, the rights under which are sublicensed to the other Party under this Agreement; and (d) to the extent necessary to perform obligations or exercise rights under this Agreement, to any Sublicensee, collaborator or potential Sublicensee or potential collaborator of such Party, provided that any Sublicensee, collaborator or potential Sublicensee or collaborator agree in writing to be bound by obligations of confidentiality and non-use no less protective of the Disclosing Party than those set forth in this Agreement.
11.1.7 Survival. Each Partys obligations under this Section 11.1 apply during the Term and continue for [* * *] thereafter with respect to Confidential Proprietary Information.
11.2 Publicity. The Parties shall issue a joint press release in the form attached hereto as Exhibit 11.2 promptly after the Effective Date. Thereafter, either Party may make subsequent public disclosure of the contents of such press release and, except as permitted under Section 11.1.4 and this Section 11.2, neither Party shall issue any subsequent press release or public statement disclosing information relating to this Agreement or the transactions contemplated hereby or the terms hereof without the prior written consent of the other Party, not to be unreasonably withheld, conditioned, or delayed; provided however, that neither Party will be prevented from complying with any duty of disclosure it may have pursuant to Applicable Laws or pursuant to the rules of any recognized stock exchange or quotation system subject to the restrictions set forth in Sections 11.1.4 and 11.1.5. If either Party desires to issue a press release or other public statement disclosing information relating to this Agreement or the transactions contemplated hereby or the terms hereof, the issuing Party will provide the other Party with a copy of the proposed press release or public statement. The issuing Party shall specify with each such proposed press release or public statement, taking into account the urgency of the matter being disclosed, a reasonable period of time within which the Receiving Party may provide any comments on such proposed press release or public statement. If the reviewing Party provides any comments, the Parties shall consult with one another on such
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proposed press release or public statement and work in good faith to prepare a mutually acceptable press release or public statement. Each Party may repeat any information relating to this Agreement that has already been publicly disclosed in accordance with this Section 11.2, provided such information continues as of such time to be accurate.
11.3 Publication. Lilly shall be entitled to issue scientific publications and make presentations with respect to the Compounds, the Products, the Programs, or their testing in accordance with Lillys internal guidelines without approval by Avidity, and Lilly shall be in control of any publications or scientific presentations regarding the Products or their testing subject to this Section 11.3. Avidity shall not issue any scientific publications regarding the Compounds, the Products or their testing without Lillys prior written consent. With respect to any paper or presentation proposed for disclosure by Lilly or its Affiliates that includes Confidential Proprietary Information of Avidity (excluding any information that falls under the exceptions of Section 11.1.3), Avidity may review and comment on such proposed paper or presentation. Lilly shall submit to Avidity the proposed publication or presentation (including posters, slides, abstracts, manuscripts, marketing materials and written descriptions of oral presentations) at least [* * *] prior to the date of submission for publication or the date of presentation, whichever is earlier, of any of such submitted materials. Avidity shall review such submitted materials and respond to Lilly as soon as reasonably possible, but in any case, within [* * *] after receipt thereof. At the option of Avidity, Lilly shall: (a) delete from such proposed publication or presentation any Confidential Proprietary Information of Avidity; and (b) upon a determination that such publication contains patentable material, delay the date of such submission for publication or the date of such presentation for [* * *] to permit the appropriate Party to seek appropriate patent protection.
ARTICLE 12
TERM & TERMINATION
12.1 Term. This Agreement commences on the Effective Date and, unless terminated earlier as provided in this Article 12, shall continue on a Product-by-Product basis until the expiration of the last Royalty Term in the Territory for such Product (the Term). Upon the expiration of the Royalty Term for a Product in a particular country, the licenses granted by Avidity to Lilly under Section 3.1.1 with respect to such Product and such country shall survive and become perpetual, fully-paid, and royalty-free, and shall remain exclusive (even as to Avidity and its Affiliates).
12.2 Termination for Material Breach.
12.2.1 Termination. Either Party may terminate this Agreement upon written notice to the other Party if such other Party materially breaches its obligations under this Agreement and, after receiving written notice from the non-breaching Party identifying such material breach in reasonable detail, fails to cure such material breach within thirty (30) days from the date of such notice; provided that if such non-payment related breach is not reasonably capable of cure within such thirty (30)-day period, the breaching Party may submit, prior to the end of such thirty (30)-day period, a reasonable plan to cure the breach within an additional sixty (60) days, in which case the other Party may not terminate this Agreement for so long as the breaching Party is using Commercially Reasonable Efforts to implement such cure plan within such additional sixty (60) days.
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12.2.2 Dispute. If the alleged breaching Party disputes in good faith the existence or materiality of a breach specified in a notice provided by the other Party in accordance with Section 12.2.1, and such alleged breaching Party provides the other Party notice of such dispute within such thirty (30)-day period, then the non-breaching Party may not terminate this Agreement under Section 12.2.1 unless and until it has been finally determined pursuant to Article 13 that the alleged breaching Party has materially breached this Agreement and such Party fails to cure such breach within thirty (30) days following such courts decision. During the pendency of such dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.
12.2.3 Lilly Option to Continue Agreement. Notwithstanding anything to the contrary under this Agreement, after the Research Term, Lilly shall have the right, at its option and by written notice to Avidity, in lieu of exercising its right to terminate this Agreement under this Section 12.2, to instead continue this Agreement in accordance with its terms subject to Lillys making all payments due from Lilly to Avidity (offset by any damages resulting from Aviditys material breach, as finally determined under Article 13, that are not otherwise previously paid directly to Lilly by Avidity), and in which case: (a) the JRC will disband; and (b) Avidity will have no further right; (i) under Section 8.2.2 and Section 8.3.3, to receive information with respect to, be represented by counsel in, object to the commencement of, share in recoveries from, or otherwise participate in enforcement of Product-Specific Patents by Lilly; or (ii) under Section 8.4, to participate and be represented in any claim of infringement that the commercialization of a Product infringes the Patent rights of a Third Party.
12.2.4 Know-How Transfer. Within thirty (30) days following Lillys election not to terminate this Agreement under Section 12.2.3, Avidity shall disclose or deliver to Lilly, to the extent not previously provided, copies of all data and information in Aviditys (or its Affiliates) possession relating to the Avidity Know-How which is reasonably necessary for Lillys Research, development or Commercialization of such Product (including for regulatory purposes). Upon Lillys reasonable request, Avidity will: (a) provide reasonable technical assistance to Lilly during such disclosure or delivery set forth in the preceding sentence; and (b) make its employees and non-employee consultants reasonably available at their respective places of employment to consult with Lilly on issues arising in the course of Lillys Research, development or Commercialization and in connection with any request related to a Product from any Regulatory Authority, including regulatory, scientific, technical and clinical testing issues. The Know-How transfer to be undertaken under this Section 12.2.4 shall be overseen by a Working Group established for such purposes, which Working Group may put in place a technology transfer plan expressly identifying Know-How owned or Controlled by Avidity or its Affiliates to be transferred and the timing for such transfer.
12.3 Termination by Lilly.
12.3.1 Partial Termination. Lilly may, at any time in its sole discretion and without cause, terminate this Agreement on a Collaboration Target-by-Collaboration Target basis upon at least; (a) sixty (60) days prior written notice to Avidity if a First Commercial Sale
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has not occurred for the lead Product with respect to such Collaboration Target; or (b) one hundred eighty (180) days prior written notice to Avidity if a First Commercial Sale of the lead Product for such Collaboration Target has occurred. Notwithstanding the foregoing, but without limiting Lillys right to terminate this Agreement in its entirety pursuant to Section 12.2.1, Lilly may not exercise its rights under this Section 12.3.1 to terminate this Agreement on a Collaboration Target-by-Collaboration Target basis prior to the third anniversary of the Effective Date if the effect of such termination is to cause there to be Programs for fewer than three (3) Collaboration Targets.
12.3.2 Entire Agreement. Lilly may, in its sole discretion, terminate this Agreement in its entirety at any time and without cause upon at least: (a) sixty (60) days prior written notice to Avidity if a First Commercial Sale has not occurred for any Product; or (b) one hundred eighty (180) days prior written notice to Avidity if a First Commercial Sale of any Product has occurred.
12.4 Termination for Patent Challenges. Except to the extent the following is unenforceable under the Applicable Law of a jurisdiction, then:
12.4.1 if Lilly, its Affiliates, or Sublicensees, directly or indirectly: (a) initiate or request an interference or opposition proceeding with respect to any Avidity Patents; (b) make, file, or maintain any claim, demand, lawsuit, or cause of action to challenge the validity or enforceability of any Avidity Patents; or (c) oppose any extension of, or the grant of a supplementary protection certificate with respect to, any Avidity-Controlled Patent, in each case other than in response to a threat of an infringement claim or as necessary to secure allowance of an Avidity-owned patent claim, then Avidity may terminate this Agreement solely with respect to the challenged Avidity Patent(s) with respect to any Programs or Products to which such patent challenge relates upon thirty (30) days prior written notice to Lilly; and
12.4.2 if Avidity, its Affiliates, or Sublicensees, directly or indirectly, (a) initiate or request an interference or opposition proceeding with respect to any Lilly Patents, (b) make, file, or maintain any claim, demand, lawsuit, or cause of action to challenge the validity or enforceability of any Lilly Patents, or (c) oppose any extension of, or the grant of a supplementary protection certificate with respect to, any Lilly Patents, in each case other than in response to a threat of an infringement claim or as necessary to secure allowance of a Lilly-owned patent claim, then Lilly may terminate this Agreement with respect to the challenged Lilly Patent(s) with respect to any Programs or Products to which such patent challenge relates upon thirty (30) days prior written notice to Avidity.
12.5 Effects of Termination. The following shall apply upon termination of this Agreement made in accordance with this Article 12. If this Agreement is terminated with respect to a Collaboration Target, such Collaboration Target is a Terminated Target. Each Product and any Compounds contained in such Product that were Directed Against such Terminated Target are Terminated Products. If this Agreement is terminated in its entirety, all Collaboration Targets are Terminated Targets and all Products are Terminated Products.
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12.5.1 Termination of Licenses. All licenses for Terminated Products granted under Article 3 terminate automatically as of the termination effective date; provided that, if Lilly (or its Affiliates or Sublicensees) has inventory of usable Product(s) as of the effective date of termination, then Lilly (and its Affiliates and Sublicensees) may continue to sell off such inventory of Products in the Field in the Territory (and fulfill customer orders therefor) until the earlier to occur of one hundred eighty (180) days after the effective date of termination and the date on which Lilly (or its Affiliates or Sublicensees) no longer has such inventory of Product(s) and shall pay Avidity any applicable royalties due based on such sales. Any permitted sublicense granted by Lilly or its Affiliate to a Third Party under the licenses granted to Lilly under this Agreement shall survive the termination of this Agreement, provided that, in the case where termination of this Agreement for Lillys uncured material breach pursuant to Section 12.2, such Sublicensee did not cause such uncured material breach. If permitted under such a surviving sublicense, effective upon termination of this Agreement, such sublicense shall become a direct license from Avidity to such Sublicensee, provided, that, if assignment of the sublicense or such conversion of the sublicense to a direct license is not permitted under the applicable sublicense, Lilly shall be entitled to retain its right to payment thereunder and shall remain liable for royalties under Section 7.3 of this Agreement with respect to sales by such Sublicensee.
12.5.2 Destruction of Confidential Proprietary Information. Subject to the potential transfer of any data and information covered below in Section 12.5.3, each Receiving Party shall destroy (at the Disclosing Partys written request) all such Confidential Proprietary Information of the Receiving Party in its possession as of the effective date of expiration or termination (with the exception of one copy of such Confidential Proprietary Information, which may be retained by the legal department of the Receiving Party to confirm compliance with the non-use and non-disclosure provisions of this Agreement), and any Confidential Proprietary Information of the Disclosing Party contained in its laboratory notebooks or databases, provided that each Receiving Party may retain and continue to use such Confidential Proprietary Information of the Disclosing Party to the extent necessary to exercise any surviving rights, licenses or obligations under this Agreement. Notwithstanding the foregoing, a Receiving Party shall not be required to destroy any computer files created during automatic system back up that are subsequently stored securely by it and not readily accessible to its employees, consultants, or others who received the Disclosing Partys Confidential Proprietary Information under this Agreement.
12.5.3 Reversion. In the event of any termination of this Agreement in its entirety or with respect to a Program, if requested by Avidity, the Parties shall negotiate in good faith to enter into a separate agreement detailing the potential transition to Avidity of Lillys rights and obligations (or portions thereof) with respect to any Terminated Target or Terminated Product, in each case that is Covered by a Lilly Patent, which agreement may provide for the payment of royalties or other compensation by Avidity to Lilly for the Commercialization by Avidity of any such Terminated Target or Terminated Product; and provided that: (a) Lilly shall have no obligation to negotiate or grant a license to any Excluded Technologies; (b) Lilly shall have no obligation to provide Avidity any Excluded Technology (including any Antibody) used in such Terminated Targets or Terminated Products (or any rights to any such Excluded Technology or Antibody); and (c) with respect to any Lilly Technology that is licensed to Lilly from a Third Party, Lilly shall have no obligation to negotiate with such Third Party for, or grant, any sublicense rights to Avidity, but shall advise Avidity of the identity of such Third Party licensor and the nature of the relevant Lilly Technology, and Avidity shall be solely responsible, at its sole cost and expense, for obtaining and negotiating for any rights to such Third Partys
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technology or intellectual property. Notwithstanding the foregoing, if the Parties are unable to agree on the terms of such a transition agreement within thirty (30) days of commencement of discussions with respect thereto despite their good faith efforts, Lilly shall have no further obligation to enter into such an agreement or negotiate with Avidity with respect thereto.
12.6 Survival. Expiration or termination of this Agreement shall not relieve the Parties of any obligation or right accruing prior to such expiration or termination. Except as set forth below or elsewhere in this Agreement, the obligations and rights of the Parties under the following provisions of this Agreement shall survive expiration or termination of this Agreement: Article 1 (to the extent such definitions are used in surviving provisions), Article 10 (with respect to claims for which the cause of action arose prior to the effective date of termination), and Article 13, and Section 4.5.1, Section 4.7 (provided that such provision shall only survive for [* * *] after expiration or termination of this Agreement), Section 7.1 (unless terminated by Lilly pursuant to Section 12.2), Section 7.2 (with respect to Milestone Events reached prior to such expiration or termination), Section 7.3 (with respect to sales of Product made before such expiration or termination or pursuant to Section 12.2.3), Section 7.5, Section 7.6, Section 7.7, Section 7.8, Section 8.1, Section 8.2, Section 8.3 (except for Sections 8.3.2 and 8.3.3), Section 8.4 (except with regard to Lilly Patents or Avidity Patents), Section 8.6, Section 11.1 (for the [* * *] survival period in Section 11.1.7), Section 12.5, this Section 12.6, Section 14.1, Section 14.2, Section 14.5, Section 14.9, Section 14.11, Section 14.16, and Section 14.17.
12.7 Bankruptcy Code. If this Agreement is rejected by a Party as a debtor under Section 365 of the United States Bankruptcy Code or similar provision in the bankruptcy laws of another jurisdiction (the Code), then, notwithstanding anything else in this Agreement to the contrary, all licenses and rights to licenses granted under or pursuant to this Agreement by the Party in bankruptcy to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Code (or similar provision in the bankruptcy laws of the jurisdiction), licenses of rights to intellectual property as defined under Section 101(35A) of the Code (or similar provision in the bankruptcy laws of another applicable jurisdiction). The Parties agree that a Party that is a licensee of rights under this Agreement shall retain and may fully exercise all of its rights and elections under the Code, and that upon commencement of a bankruptcy proceeding by or against a Party under the Code, the other Party shall be entitled to a complete duplicate of, or complete access to (as such other Party deems appropriate), any such intellectual property and all embodiments of such intellectual property, if not already in such other Partys possession, shall be promptly delivered to such other Party: (a) upon any such commencement of a bankruptcy proceeding upon written request therefor by such other Party, unless the bankrupt Party elects to continue to perform all of its obligations under this Agreement; or (b) if not delivered under the foregoing subclause (a), upon the rejection of this Agreement by or on behalf of the bankrupt Party upon written request therefor by the other Party. The foregoing provisions of this Section 12.7 are without prejudice to any rights a Party may have arising under the Code.
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ARTICLE 13
GOVERNING LAW; DISPUTE RESOLUTION
13.1 Governing Law. This Agreement is governed by and will be construed in accordance with the laws of the State of New York, without reference to its conflict of laws principles. The United Nations Convention of International Contracts on the Sale of Goods (the Vienna Convention) does not apply to this Agreement.
13.2 Disputes. The Parties recognize that controversies or claims arising out of, relating to, or in connection with this Agreement may arise from time to time. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties shall follow the procedures set forth in this Article 13 to resolve any dispute. If any dispute, claim or controversy of any nature arising out of or relating to this Agreement, including any action or claim based on tort, contract or statute, or concerning the interpretation, effect, termination, validity, performance or breach of this Agreement (each, a Dispute), arises between the Parties, either Party may refer the Dispute to Executive Officers of each Party for resolution within [* * *] of a written request by either Party to the other Party. Each Party, within [* * *] after a Party has received such written request from the other Party to so refer such Dispute, shall notify the other Party in writing of the Executive Officer to whom such Dispute is referred. If, after an additional [* * *] after the notice of Dispute, such Executive Officers have not succeeded in negotiating a resolution of the Dispute, and a Party wishes to pursue the matter, each such Dispute, controversy or claim that is not an Excluded Claim (defined in Section 13.5) may, subject to each Party consenting, be submitted for nonbinding mediation administered by the American Arbitration Association (AAA) pursuant to its Commercial Mediation Procedures in effect at the time such Dispute arises (the AAA Mediation Procedures), or the Parties may seek to resolve the Dispute in any federal court having jurisdiction thereof located in New York, New York as further described in Section 13.4. The option to mediate under this Article 13 shall extend to any claims by or against the Parties and their respective Affiliates and any agents, principals, officers, directors, or employees of either of the Parties or their respective Affiliates.
13.3 Mediation. Any mediation that the Parties decide to pursue shall be conducted by a single neutral mediator experienced in the business of pharmaceuticals. If the issues in dispute involve scientific, technical or commercial matters, the mediator chosen hereunder may engage experts that have educational training or industry experience sufficient to demonstrate a reasonable level of relevant scientific, medical and industry knowledge, as necessary to help resolve the dispute. The Parties shall select the mediator promptly following the initiation of the mediation. If the Parties are unable or fail to agree upon the mediator within [* * *] following the initiation of mediation, the mediator shall be appointed by AAA. The mediation shall be conducted in New York, New York, and all proceedings and communications shall be in English. Except to the extent necessary to enforce a legal right or as may be required by law, neither a Party nor a mediator may disclose the existence, content, or results of a mediation without the prior written consent of both Parties. In no event shall a mediation be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable New York statute of limitations. Each
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Party shall bear its own costs and expenses and attorneys fees and an equal share of the mediators fees and any administrative fees of mediation. For clarity, notwithstanding anything to the contrary in this Agreement or as set forth in the AAA Mediation Procedures, under no circumstance shall any such mediation findings or rulings be binding on either Party, unless the Parties subsequently mutually agree to the contrary in writing. No agreement to mediate shall preclude either Party from subsequently withdrawing from the mediation and commencing an action as described in Section 13.4.
13.4 Litigation; Equitable Relief. The Federal courts located in New York, New York shall have exclusive jurisdiction over, and shall be the exclusive venue for resolution of, any Dispute not resolved through the informal Dispute-resolution procedures described above. If, within [* * *] following (a) a notice by either Party to the other that it does not believe the Dispute can be resolved through the Executive Officers when the Parties do not agree to mediation or (b) if the Parties agree to mediation, termination of such mediation, neither Party has commenced proceedings seeking to resolve such Dispute in any federal court having jurisdiction, then such Dispute and all related rights, demands, claims, actions, causes of action, suits, proceedings and Losses of every kind and nature shall be deemed to have been irrevocably waived and released, to the fullest extent permitted under Applicable Laws. Either Party may, at any time and without waiving any remedy under this Agreement, seek from any court having jurisdiction any temporary injunctive or provisional relief necessary to protect the rights or property of that Party. Any final judgment resolving a Dispute may be enforced by either Party in any court having appropriate jurisdiction.
13.5 Excluded Claims. As used in this Article 13, the term Excluded Claim means any dispute, controversy or claim that concerns: (a) the validity, enforceability or infringement of any patent, trademark or copyright; or (b) any antitrust, anti-monopoly or competition law or regulation, whether or not statutory. Any Excluded Claim may be submitted by either Party to any court of competent jurisdiction over such Excluded Claim.
ARTICLE 14
MISCELLANEOUS
14.1 Entire Agreement; Amendment. This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior and contemporaneous agreements and understandings between the Parties with respect to the subject matter hereof, including the Confidential Disclosure Agreement. The foregoing may not be interpreted as a waiver of any remedies available to either Party as a result of any breach, prior to the Effective Date, by the other Party of its obligations under the Confidential Disclosure Agreement. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.
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14.2 Limitation of Liability. NEITHER PARTY MAY RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THIS SECTION 14.2 SHALL NOT BE CONSTRUED TO LIMIT EITHER PARTYS INDEMNIFICATION OBLIGATIONS UNDER Article 10.
14.3 Independent Contractors. The relationship between Lilly and Avidity created by this Agreement is solely that of independent contractors. This Agreement does not create any agency, distributorship, employee-employer, partnership, joint venture or similar business relationship between the Parties. Neither Party is a legal representative of the other Party, and neither Party can assume or create any obligation, representation, warranty, or guarantee, express or implied, on behalf of the other Party.
14.4 Notice. Any notice required or permitted to be given by this Agreement must be in writing, in English. Any and all notices or other communications or deliveries required or permitted to be provided hereunder must be in writing and will be deemed given and effective if: (a) delivered by hand or by overnight courier with tracking capabilities; (b) mailed postage prepaid by first class, registered, or certified mail; or (c) delivered by facsimile or electronic mail followed by delivery via either of the methods set forth in clauses (a) and (b) of this Section 14.4, in each case, addressed as set forth below unless changed by notice so given:
If to Avidity: | Avidity Biosciences, Inc. 10975 N. Torrey Pines Rd. Suite 150 La Jolla, CA 92037 Attn: Chief Business Officer [* * *] [* * *]
with a copy (which shall not constitute notice) to:
Cooley LLP 3175 Hanover Street Palo Alto, CA 94304 [* * *] [* * *] [* * *] | |
If to Lilly: | Eli Lilly and Company Lilly Corporate Center Indianapolis, Indiana 46285 Attn: Senior Vice President, Corporate Business Development [* * *]
with a copy (which shall not constitute notice) to:
Eli Lilly and Company Lilly Corporate Center Indianapolis, IN 46285 Attn: General Counsel [* * *] |
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Avidity shall also provide a copy of any notice (via e-mail if available) to Lillys Alliance Manager.
14.5 Severability. If, for any reason, any part of this Agreement is adjudicated invalid, unenforceable, or illegal by a court of competent jurisdiction, such adjudication shall not, to the extent feasible, affect or impair, in whole or in part, the validity, enforceability, or legality of any remaining portions of this Agreement. All remaining portions will remain in full force and effect.
14.6 Non-Use of Names. Avidity shall not use the name, trademark, logo, or physical likeness of Lilly or its respective officers, directors or employees, or any adaptation of any of them, in any advertising, promotional or sales literature, without Lillys prior written consent. Avidity shall require its Affiliates to comply with the foregoing. Lilly shall not use the name, trademark, logo, or physical likeness of Avidity or its officers, directors or employees, or any adaptation of any of them, in any advertising, promotional or sales literature, without Aviditys prior written consent. Lilly shall require its Affiliates and Sublicensees to comply with the foregoing.
14.7 Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment or transfer without the other Partys consent to: (a) its Affiliate, provided that such Party shall remain primarily liable for any acts or omissions of such Affiliate; or (b) to an Acquirer in connection with a Change of Control, subject to Section 14.8. Any permitted assignee shall, in writing to the non-assigning Party, expressly assume performance of such assigning Partys rights and obligations. Any permitted assignment is binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 14.7 is null, void and of no legal effect.
14.8 Avidity Change of Control.
14.8.1 Notification of Change of Control. Avidity shall provide Lilly with prompt written notice of any Change of Control of Avidity, which notice shall describe in reasonable detail the nature of the transaction and the identity of the Acquirer. If not prohibited under Applicable Law or by the terms of any written agreement between Avidity and any Third party, Avidity shall provide such notice to Lilly prior to execution of any agreement(s) that would result in the Change of Control of Avidity.
14.8.2 Change of Control with Lilly Competitor. If Avidity undergoes a Change of Control involving a Lilly Competitor, then:
(a) Lilly may, by written notice delivered to Avidity within [* * *] following the earlier of first public announcement of such Change of Control or Aviditys written notice to Lilly (pursuant to Section 14.8.1), elect to retain its rights to Compounds or Products under this Agreement, in which case: (i) the JRC shall be immediately disbanded, and
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all approval rights of the JRC shall become approval rights of the corresponding Party (i.e., mutual agreement by the Parties or final decision making authority by a Party); (ii) Avidity shall only have the right to receive high level summary reports from Lilly under Section 5.3 without the inclusion of any Lilly Confidential Proprietary Information; (iii) Lilly shall have the option, upon written notice to Avidity, to transfer all [* * *]; (iv) any expenses [* * *]; and (v) Avidity shall thereafter have no right (A) under Section 8.2.2 to take over and continue the filing, prosecution, maintenance and defense of a Product-Specific Patent proposed to be abandoned by Lilly, (B) under Section 8.2.2 and Section 8.3.3, to receive information with respect to, be represented by counsel in, object to the commencement of, share in recoveries from, or otherwise participate in enforcement of Product-Specific Patents by Lilly, (C) under Section 8.5 to consult with respect to Lillys decision to seek patent term extensions, supplemental protection certificates and the like for Product-Specific Patents, or (D) under Section 8.4, to participate and be represented in any claim of infringement that the commercialization of a Product infringes the Patent rights of a Third Party; and
(b) Avidity shall implement and enforce effective walls and screens between personnel working on the business of Avidity related to the transactions contemplated by this Agreement, on the one hand, and the business of Avidity collaborating with the Lilly Competitor, on the other hand, to ensure that no information directly relating to any Compounds or Products or the transactions contemplated by this Agreement is accessible by such Lilly Competitor and that the same level of diligence is applied to such activities after the consummation of such Change of Control as compared to prior to the consummation of such Change of Control.
14.8.3 Acquirer with [* * *]. Following any Change of Control of Avidity to an Acquirer that owns or controls any Patent rights directed to Avidity Proprietary Technology or inventions, Avidity shall [* * *], provided that such requirement shall not apply (a) to any Antibody-related Patent rights that may be owned or controlled by such Acquirer if such Patent rights would not otherwise be considered Avidity Patents, or (b) to the extent Lilly is in material breach of this Agreement and has failed to cure such breach in the applicable time period set forth in Section 13.2.
14.9 Waivers. The failure of a Party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Other than any deemed waiver and release under Section 13.4, any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such Party.
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14.10 Force Majeure. Neither Party shall be responsible to the other for any failure or delay in performing any of its obligations under this Agreement or for other nonperformance hereunder (excluding, in each case, the obligation to make payments when due) if such delay or nonperformance is caused by strike, fire, flood, earthquake, accident, war, act of terrorism, act of God or of the government of any country or of any local government, or by any other cause unavoidable or beyond the control of any Party hereto. In such event, such affected Party shall use Commercially Reasonable Efforts to resume performance of its obligations and will keep the other Party informed of actions related thereto.
14.11 Interpretation. The captions and headings to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. Unless specified to the contrary, references to Articles, Sections, Schedules or Exhibits mean the particular Articles, Sections, Schedules or Exhibits to this Agreement and references to this Agreement include all Exhibits hereto. In the event of any conflict between the main body of this Agreement and any Exhibit hereto, the main body of this Agreement shall prevail. Unless context otherwise clearly requires, whenever used in this Agreement: (a) the words include or including shall be construed as incorporating, also, but not limited to or without limitation; (b) the word day or year means a calendar day or year unless otherwise specified; (c) the word notice means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement; (d) the words hereof, herein, hereby and derivative or similar words refer to this Agreement as a whole and not merely to the particular provision in which such words appear; (e) the words shall and will have interchangeable meanings for purposes of this Agreement; (f) provisions that require that a Party, the Parties or a committee hereunder agree, consent or approve or the like shall require that such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes or otherwise; (g) words of any gender include the other gender; (h) words using the singular or plural number also include the plural or singular number, respectively; (i) references to any specific law, rule or regulation, or article, section or other division thereof, shall be deemed to include the then-current amendments thereto or any replacement law, rule or regulation thereof; (j) the phrase non-refundable shall not prohibit, limit or restrict either Partys right to obtain damages in connection with a breach of this Agreement; and (k) neither Party shall be deemed to be acting on behalf of the other Party.
14.12 Counterparts; Electronic Signatures. This Agreement may be executed in any number of counterparts, each of which is deemed an original, but all of which together constitute one instrument. This Agreement may be executed and delivered electronically and upon such delivery such electronic signature will be deemed to have the same effect as if the original signature had been delivered to the other Party.
14.13 Expenses. Each Party shall pay its own costs, charges and expenses incurred in connection with the negotiation, preparation and execution of this Agreement.
14.14 Further Assurances. Lilly and Avidity hereby covenant and agree without the necessity of any further consideration, to execute, acknowledge and deliver any and all documents and take any action as may be reasonably necessary to carry out the intent and purposes of this Agreement.
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14.15 No Third Party Beneficiary Rights. This Agreement is not intended to and shall not be construed to give any Third Party any interest or rights (including any Third Party beneficiary rights) with respect to or in connection with any agreement or provision contained herein or contemplated hereby, except as otherwise expressly provided for in this Agreement.
14.16 Construction. The Parties hereto acknowledge and agree that: (a) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (b) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement; and (c) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in a favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.
14.17 Cumulative Remedies. No remedy referred to in this Agreement is intended to be exclusive unless explicitly stated to be so, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law.
14.18 Extension to Affiliates. Except as expressly set forth otherwise in this Agreement, each Party shall have the right to extend the rights and immunities granted in this Agreement to one or more of its Affiliates. All applicable terms and provisions of this Agreement, except this right to extend, shall apply to any such Affiliate to which this Agreement has been extended to the same extent as such terms and provisions apply to the Party extending such rights and immunities. For clarity, Lilly extending the rights and immunities granted hereunder shall remain primarily liable for any acts or omissions of its Affiliates.
[signature page follows]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date by their duly authorized representatives.
AVIDITY BIOSCIENCES, INC.
By: /s/ Kent Hawryluk
Name: Kent Hawryluk
Title: Authorized Officer
ELI LILLY AND COMPANY
By: /s/ David A. Ricks
Name: David A. Ricks
Title: Chairman and CEO
[Signature page to Research Collaboration and License Agreement]
Exhibit 1.14
Avidity Patents
[* * *]
Exhibit 1.14 - 1
[* * *]
Exhibit 1.14 - 2
[* * *]
Exhibit 1.14 - 3
[* * *]
Exhibit 1.14 - 4
Exhibit 4.2.1
Reserved Targets
[* * *]
Exhibit 4.2.1 1
Exhibit 4.3
Initial Research Plan
[* * *]
Exhibit 4.3 - 1
[* * *]
Exhibit 4.3 - 2
[* * *]
Exhibit 4.3 - 3
[* * *]
Exhibit 4.3 - 4
[* * *]
Exhibit 4.3 - 5
[* * *]
Exhibit 4.3 - 6
[* * *]
Exhibit 4.3 - 7
Exhibit 4.10
Part A: Eli Lilly and Company Good Research Practices
[* * *]
Exhibit 4.10 - 1
[* * *]
Exhibit 4.10 - 2
Exhibit 4.10
Part B: Eli Lilly and Company Animal Care and Use Requirement for Animal Researchers and Suppliers
[* * *]
Exhibit 4.10 - 3
Exhibit 11.2
Joint Press Release
![]() |
![]() |
April XX, 2019
For Release: Draft B
Refer to: Mark Taylor; mark.taylor@lilly.com; (317) 276-5795 (Lilly Media)
Kevin Hern; hern_kevin_r@lilly.com; (317) 277-1838 (Lilly Investors)
Leslie Ann Kerins; leslie@aviditybio.com; (858) 401-7900 (Avidity)
Ian Stone; ian@canalecomm.com; (619) 849-5388 (Avidity Media)
Lilly and Avidity Biosciences Announce Licensing and Research Collaboration
| Collaboration will utilize Aviditys antibody-oligonucleotide conjugate (AOC) technology to pursue therapeutic targets initially focused on immunology and other indications |
| Avidity to receive an upfront payment of $20 million and an investment of $15 million |
| Avidity eligible to receive up to approximately $405 million per target in development and commercialization milestones, plus royalties |
INDIANAPOLIS, IN, LA JOLLA, CA Eli Lilly and Company (NYSE: LLY) and Avidity Biosciences, Inc. today announced a global licensing and research collaboration focused on the discovery, development and commercialization of potential new medicines in immunology and other select indications.
The companies will utilize Aviditys proprietary Antibody-Oligonucleotide Conjugate (AOC) technology platform to progress new therapeutic approaches toward clinical development and commercialization. AOCs combine the tissue selectivity of monoclonal antibodies and the precision of oligonucleotide-based therapeutics to overcome barriers to the delivery of oligonucleotides and target genetic drivers of disease.
Exhibit 11.2 - 1
We are excited to expand our oligonucleotide research and development efforts through this strategic collaboration with Avidity, said Andrew C. Adams, Ph.D., chief scientific officer for RNA therapeutics at Lilly. Their expertise in studying the combination of monoclonal antibodies and oligonucleotide-based therapies represent a promising avenue of research toward development of the next generation of RNA based medicines
This collaboration with Lilly provides an exceptional opportunity to leverage Aviditys proprietary AOC platform in order to generate new therapeutic targets in disease areas that have been challenging to pursue using oligonucleotide-based approaches, said Kent Hawryluk, Aviditys chief business officer. Lillys extensive research, development, regulatory, and commercial capabilities make them an ideal partner, and we look forward to a long and productive relationship.
Under the terms of the agreement, Avidity will receive an upfront payment of $20 million, as well as an investment of $15 million. Avidity is also eligible to receive up to approximately $405 million per target for development, regulatory and commercialization milestones, as well as tiered royalties ranging from the mid-single to low-double digits on product sales.
This transaction is subject to clearance under customary closing conditions. The transaction will be reflected in Lillys reported results and financial guidance according to Generally Accepted Accounting Principles (GAAP). There will be no change to Lillys 2019 non-GAAP earnings per share guidance as a result of this transaction.
About Aviditys AOC Technology Platform
Aviditys Antibody Oligonucleotide Conjugate (AOC) technology utilizes antibodies to target cells and tissues of interest and facilitate the uptake and internalization of oligonucleotide payloads. By combining the cellular and tissue selectivity of antibodies with the selectivity and efficiency of oligo-based approaches, Avidity has demonstrated modulation of disease-related RNAs in diverse cell types and tissues including muscle, heart, liver, tumors and immune cells.
Exhibit 11.2 - 2
About Avidity Biosciences, Inc.
Avidity Biosciences, Inc. is a privately-held biotech company pioneering Antibody Oligonucleotide Conjugates (AOC). AOCs combine the tissue selectivity of monoclonal antibodies and the precision of oligonucleotide-based therapeutics to overcome barriers to the delivery of oligonucleotides and target genetic drivers of disease. Avidity has raised $30 million in venture financing from a top-tier group of investors, including Takeda Ventures, Alethea Capital, Alexandria Real Estate Equities, Brace Pharma, EcoR1 Capital, F-Prime Capital, Moore Venture Partners, and Boxer Capital of Tavistock Group.
About Eli Lilly and Company Lilly is a global healthcare leader that unites caring with discovery to create medicines that make life better for people around the world. We were founded more than a century ago by a man committed to creating high-quality medicines that meet real needs, and today we remain true to that mission in all our work. Across the globe, Lilly employees work to discover and bring life-changing medicines to those who need them, improve the understanding and management of disease, and give back to communities through philanthropy and volunteerism. To learn more about Lilly, please visit us at www.lilly.com and http://newsroom.lilly.com/social-channels. C-LLY
Lilly Forward-Looking Statement This press release contains forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995) about the benefits of a collaboration between Lilly and Avidity, and reflects Lillys current beliefs. However, as with any such undertaking, there are substantial risks and uncertainties in the process of drug development and commercialization. Among other things, there can be no guarantee that Lilly will realize the expected benefits of the collaboration, or that the collaboration will yield commercially successful products. For a further discussion of these and other risks and uncertainties that could cause actual results to differ from Lillys expectations, please see Lillys most recent Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission. Lilly undertakes no duty to update forward-looking statements.
# # #
Exhibit 11.2 - 3
Exhibit 10.12
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this Agreement) dated as of August 7, 2015 (the Effective Date) by and between SILICON VALLEY BANK, a California corporation (Bank), and AVIDITY NANOMEDICINES LLC, a Delaware limited liability company (Borrower), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.
2. LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1 Growth Capital Advances.
(a) Availability. Subject to the terms and conditions of this Agreement, Bank agrees to make advances to Borrower (each a Growth Capital Advance and collectively the Growth Capital Advances), from time to time, prior to the Growth Capital Commitment Termination Date in an aggregate amount not to exceed the Growth Capital Commitment. The Growth Capital Advances shall be available in two (2) tranches. The first tranche of the Growth Capital Advances shall be advanced to Borrower on or about the Effective Date in a single advance in an aggregate amount up to Two Million Five Hundred Thousand Dollars ($2,500,000) (the First Tranche Growth Capital Advance). Provided that Borrower has satisfied the Tranche Two Milestone, the second tranche of the Growth Capital Advances may be advanced in a single advance in an aggregate amount up to Two Million Five Hundred Thousand Dollars ($2,500,000) at any time commencing on September 30, 2015 through the Growth Capital Commitment Termination Date (the Second Tranche Growth Capital Advance). After repayment, no Growth Capital Advance may be re-borrowed.
(b) Repayment.
(i) Interest-Only Payments. Borrower shall make monthly payments of interest-only on each Growth Capital Advance commencing on the first (1st) calendar day of the first (1st) month following the month in which the Funding Date for such Growth Capital Advance occurs and continuing thereafter during the Interest-Only Period on the first (1st) calendar day of each successive month.
(ii) Principal and Interest Payments. Commencing on the first (1st) calendar day of the first (1st) month following the Interest-Only Period for each Growth Capital Advance (the Conversion Date) and continuing on the first (1st) day of each month thereafter, Borrower shall make thirty-six (36) consecutive monthly payments of (A) principal which would fully amortize the outstanding Growth Capital Advance as of the Conversion Date over the Repayment Period, plus (B) accrued interest. All unpaid principal and accrued and unpaid interest on each Growth Capital Advance is due and payable in full on the Growth Capital Maturity Date.
(c) Prepayment.
(i) Permitted Prepayment. At Borrowers option, Borrower shall have the option to prepay all or any part of the Growth Capital Advances advanced by Bank under this Agreement, provided Borrower (A) provides written notice to Bank of its election to exercise to prepay the Growth Capital Advances at least five (5) days prior to such prepayment, and (B) pays, on the date of the prepayment (i) all applicable accrued and unpaid interest with respect to each prepaid Growth Capital Advance through the date the prepayment is made; plus (ii) all unpaid principal with respect to such prepaid Growth Capital Advance; plus (iii) the applicable portion of the Final Payment; plus (iv) all other sums, if any, that shall have become due and payable hereunder with respect to this Agreement. Any partial prepayments, other than the final prepayment, shall each be in an amount of not less than One Hundred Thousand Dollars ($100,000).
(ii) Mandatory Prepayment Upon an Acceleration. If the Growth Capital Advances are accelerated by Bank following the occurrence and continuance of an Event of Default or otherwise, Borrower shall immediately pay to Bank an amount equal to the sum of: (i) all accrued and unpaid interest with respect to each Growth Capital Advance through the date the prepayment is made; plus (ii) all unpaid principal with respect to each Growth Capital Advance; plus (iii) the Final Payment; plus (iv) all other sums, if any, that shall have become due and payable as of the date of repayment, including interest at the Default Rate with respect to any past due amounts.
2.2 Payment of Interest on the Credit Extensions.
(a) Interest Rate. Subject to Section 2.2(b), the principal amount outstanding under the Growth Capital Advances shall accrue interest at a fixed per annum rate equal to the Basic Rate on the Funding Date, which interest shall be payable monthly in accordance with Section 2.2(d) below.
(b) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percent (5.00%) above the rate that is otherwise applicable thereto (the Default Rate). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.
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(c) Reserved.
(d) Payment; Interest Computation. Interest is payable monthly on the first (1st) calendar day of each month and shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.
2.3 Fees. Borrower shall pay to Bank:
(a) Final Payment. A Final Payment due on the earlier of (i) the Growth Capital Maturity Date, (ii) the final payment date of each Growth Capital Advance, or (iii) at the time of a prepayment when due pursuant to the terms of Section 2.1.1(c);
(b) Good Faith Deposit. Borrower has paid to Bank a deposit of Ten Thousand Dollars ($10,000) (the Good Faith Deposit) to initiate Banks due diligence review process. Any portion of the Good Faith Deposit not utilized to pay Bank Expenses will be returned to Borrower;
(c) Bank Expenses. All Bank Expenses (including reasonable attorneys fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank); and
(d) Fees Fully Earned. Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Banks obligation to make loans and advances hereunder. Bank may deduct amounts owing by Borrower under the clauses of this Section 2.3 pursuant to the terms of Section 2.4(c). Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.3.
2.4 Payments; Application of Payments; Debit of Accounts.
(a) All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.
(b) Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied. Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.
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(c) Bank may debit any of Borrowers deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.
2.5 Withholding. Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any Governmental Authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority. Borrower will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.5 shall survive the termination of this Agreement.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. Banks obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:
(a) duly executed original signatures to the Loan Documents;
(b) duly executed original signatures to the Warrant;
(c) duly executed original signatures to the Control Agreement;
(d) the Operating Documents and long-form good standing certificate of Borrower certified by the Secretary of State (or equivalent agency) of Borrowers jurisdiction of organization or formation, as of a date no earlier than thirty (30) days prior to the Effective Date;
(e) duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(f) certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;
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(g) the Perfection Certificate of Borrower, together with the duly executed original signature thereto;
(h) a copy of Borrowers Registration Rights Agreement, Investors Rights Agreement, and any amendments thereto;
(i) evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank; and
(j) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.
3.2 Conditions Precedent to all Credit Extensions. Banks obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:
(a) timely receipt of an executed Payment/Advance Form;
(b) the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrowers representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and
(c) Bank determines to its sole, but reasonable satisfaction that there has not been a Material Adverse Change.
3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrowers obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Banks sole discretion.
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3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of a Growth Capital Advance set forth in this Agreement, to obtain a Growth Capital Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of a Growth Capital Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Growth Capital Advances to the Designated Deposit Account. Bank may make Growth Capital Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Growth Capital Advances are necessary to meet Obligations which have become due.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.
Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Banks Lien in this Agreement).
If this Agreement is terminated, Banks Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as Banks obligation to make Credit Extensions has terminated, Bank shall, at the sole cost and expense of Borrower, release its Liens in the Collateral and all rights therein shall revert to Borrower. In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its business judgment), to secure all of the Obligations relating to such Letters of Credit.
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4.2 Priority of Security Interest. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Banks Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.
4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Banks interest or rights hereunder, including a notice that any disposition of the Collateral, except dispositions permitted herein, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization, Authorization; Power and Authority. Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any other jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrowers business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled Perfection Certificate. Borrower represents and warrants to Bank that (a) Borrowers exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrowers organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrowers place of business, or, if more than one, its chief executive office as well as Borrowers mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement and provided that the Perfection Certificate shall be deemed to be updated to reflect the information provided in any notice delivered by Borrower to Bank pursuant to Section 7.2 of this Agreement).
The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrowers organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval
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from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrowers business.
5.2 Collateral. Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Banks Affiliates except for the Collateral Accounts described in the Perfection Certificate (as the same may be updated from time to time) delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the terms of Section 6.6(b). The Accounts are bona fide, existing obligations of the Account Debtors.
The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2. All Inventory is in all material respects of good and marketable quality, free from material defects.
Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discrete geographical areas outside of the United States, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate (as the same may be updated from time to time pursuant to Section 6.8(b)). Each Patent which it owns or purports to own and which is material to Borrowers business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrowers business has been judged invalid or unenforceable, in whole or in part. To the best of Borrowers knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrowers business. Except as noted on the Perfection Certificate (as the same may be updated from time to time pursuant to Section 6.8(b)), Borrower is not a party to, nor is it bound by, any Restricted License.
5.3 Reserved.
5.4 Litigation. There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, Two Hundred Fifty Thousand Dollars ($250,000).
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5.5 Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrowers consolidated financial condition and Borrowers consolidated results of operations as of the dates and for the periods presented. There has not been any material deterioration in Borrowers consolidated financial condition since the date of the most recent financial statements submitted to Bank.
5.6 Solvency. The fair salable value of Borrowers consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrowers liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.
5.7 Regulatory Compliance. Borrower is not an investment company or a company controlled by an investment company under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrowers or any of its Subsidiaries properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrowers knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrowers business.
5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports or extensions therefor, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Fifty Thousand Dollars ($50,000).
To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a Permitted Lien. Borrower is unaware of any claims or adjustments proposed for any of Borrowers prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not
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withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital, and to fund its general business requirements and not for personal, family, household or agricultural purposes.
5.11 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
5.12 Definition of Knowledge. For purposes of the Loan Documents, whenever a representation or warranty is made to Borrowers knowledge or awareness, to the best of Borrowers knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.
6. AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance.
(a) Maintain its and all its Subsidiaries legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each other jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrowers business or operations. Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject.
(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of the Collateral. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.
6.2 Financial Statements, Reports, Certificates. Provide Bank with the following:
(a) Monthly Financial Statements. As soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidating (if applicable) and consolidated balance sheet and income statement (including a statement of cash flows, if prepared by Borrower in the ordinary course of business) covering Borrowers consolidated and Borrowers and each of its Subsidiarys operations for such month certified by a Responsible Officer and in a form reasonably acceptable to Bank (the Monthly Financial Statements);
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(b) Monthly Compliance Certificate. Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement, if any, and such other information as Bank may reasonably request;
(c) Annual Operating Budget and Financial Projections. As soon as available, within thirty (30) days after the last day of Borrowers fiscal year, but in no event later than seven (7) days after approval by Borrowers Board of Managers, and as more frequently updated, (i) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower, and (ii) annual financial projections for the following fiscal year (on a quarterly basis) as approved by Borrowers Board of Managers, together with any related business forecasts used in the preparation of such annual financial projections;
(d) Annual Audited Financial Statements. As soon as available, but no later than one hundred (180) days after the last day of Borrowers fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements from an independent certified public accounting firm reasonably acceptable to Bank;
(e) Other Statements. Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrowers security holders or to any holders of Subordinated Debt;
(f) SEC Filings. In the event that Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrowers website on the Internet at Borrowers website address; provided, however, Borrower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;
(g) Legal Action Notice. A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Two Hundred Fifty Thousand Dollars ($250,000) or more; and
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(h) Other Financial Information. Other financial information reasonably requested by Bank.
6.3 Inventory; Returns. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrowers customary practices as they exist at the Effective Date. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Fifty Thousand Dollars ($50,000).
6.4 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports or extensions thereof and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
6.5 Insurance.
(a) Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are satisfactory to Bank. All property policies shall have a lenders loss payable endorsement showing Bank as the sole lender loss payee. All liability policies shall show, or have endorsements showing, Bank as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.
(b) Ensure that proceeds payable under any property policy are, at Banks option, payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations.
(c) At Banks request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments. Each provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days (ten (10) days for non-payment of premium) prior written notice before any such policy or policies shall be materially altered or canceled. If Borrower fails to obtain insurance as required under this
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Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.
6.6 Operating Accounts.
(a) Maintain its primary and its Subsidiaries primary operating and other deposit accounts and securities accounts with Bank and Banks Affiliates.
(b) Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Banks Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Banks Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers employees and identified to Bank by Borrower as such.
6.7 Reserved.
6.8 Protection of Intellectual Property Rights.
(a) (i) Protect, defend and maintain the validity and enforceability of its Intellectual Property material to the business; (ii) promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property material to the business; and (iii) not allow any Intellectual Property material to Borrowers business to be abandoned, forfeited or dedicated to the public without the Banks written consent which shall not be unreasonably withheld.
(b) Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such commercially reasonable steps as Bank reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Banks rights and remedies under this Agreement and the other Loan Documents.
6.9 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrowers books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.
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6.10 Access to Collateral; Books and Records. Allow Bank, or its agents, at reasonable times, on one (1) Business Days notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrowers Books. Such inspections or audits shall be conducted no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary. The foregoing inspections and audits shall be at Borrowers expense, and the charge therefor shall be Eight Hundred Fifty Dollars ($850) per person per day (or such higher amount as shall represent Banks then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Banks rights or remedies), Borrower shall pay Bank a fee of One Thousand Dollars ($1,000) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.
6.11 Formation or Acquisition of Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall, if requested by Bank in its sole discretion (a) cause such new Subsidiary to provide to Bank a joinder to this Agreement to cause such Subsidiary to become a co-borrower hereunder or Guarantor, together with such appropriate financing statements and/or Control Agreements, all in form and substance reasonably satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary (or if such new Subsidiary is a Foreign Subsidiary, not more than sixty-five percent (65%) of the presently existing and hereafter arising issued and outstanding shares of equity interests owned by Borrower of any such Foreign Subsidiary which shares entitle the holder thereof to vote for managers or any other matter), in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel, for a Foreign Subsidiary, satisfactory to Bank, if requested by Bank in its sole discretion, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.11 shall be a Loan Document.
6.12 Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Banks Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.
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7. NEGATIVE COVENANTS
Borrower shall not do any of the following without Banks prior written consent:
7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, Transfer), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out, surplus or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any limited liability company interests of Borrower permitted under Section 7.2 of this Agreement; (e) consisting of Borrowers use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; (f) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discrete geographical areas outside of the United States; (g) sales or discounting of delinquent accounts in the ordinary course of business; and (h) not otherwise permitted by this Section 7.1 in an amount not to exceed Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year.
7.2 Changes in Business, Management, Ownership, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person(s) departing from or ceasing to be employed by Borrower within five (5) Business Days after his/her/their departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the equity holders of Borrower who were not equity holders immediately prior to the first such transaction own more than forty-nine percent (49%) of the voting equity of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrowers equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).
Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in Borrowers assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank.
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7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the equity interests or property of another Person (the Target) (including, without limitation, by the formation of any Subsidiary) (an Acquisition) other than in connection with a Permitted Acquisition. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein (subject only to purchase money Liens permitted under clause (c) of the definition of Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Banks Lien under this Agreement), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrowers or any Subsidiarys Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of Permitted Liens herein.
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.
7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any equity interests; provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in equity interests, (iii) Borrower may repurchase the equity interests of former employees or consultants pursuant to equity repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase provided that the aggregate amount of all such repurchases does not exceed Two Hundred Fifty Thousand Dollars ($250,000) per fiscal year (or in any amount where the consideration for such repurchase is the cancellation of Indebtedness under non-cash loans to current or former employees, officers, managers, or consultants relating to the purchase of equity securities of Borrower pursuant to equity purchase plans or equity compensation arrangements approved by Borrowers board of managers), and (iv) Borrower may distribute equity securities to former or current employees, officers, consultants or managers on the exercise of employee equity options approved by Borrowers board of managers (collectively, Permitted Distributions); or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so. Notwithstanding the foregoing, Subsidiaries of Borrower shall be permitted to pay dividends or make distributions to Borrower.
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7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (a) transactions that are in the ordinary course of Borrowers business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arms length transaction with a non-affiliated Person, (b) equity investments in Borrower, (c) unsecured debt financings from Borrowers investors so long as all such Indebtedness shall constitute unsecured Subordinated Debt, (d) compensation arrangements and benefit plans for officers and other employees of Borrower and its Subsidiaries entered into or maintained in the ordinary course of business, (e) reasonable and customary fees paid to members of Borrowers Board of Managers and its Subsidiaries in the ordinary course of business, (f) transactions between or among Borrower and any of its Subsidiaries that are not otherwise prohibited hereunder, and (g) transactions permitted pursuant to Section 7.2 and 7.7 hereof.
7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.
7.10 Compliance. Become an investment company or a company controlled by an investment company, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrowers business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any material liability of Borrower, including any material liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
8. EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an Event of Default) under this Agreement:
8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Growth Capital Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);
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8.2 Covenant Default.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.8(b), 6.10 or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment; Levy; Restraint on Business.
(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary), or (ii) a notice of lien or levy is filed against any of Borrowers assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or
(b) (i) any material portion of Borrowers assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;
8.5 Insolvency. (a) Borrower or any of its Subsidiaries is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and is not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6 Other Agreements. There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Two Hundred Fifty Thousand Dollars ($250,000); or (b) any breach or default by Borrower, the result of which could reasonably be expected to have a material adverse effect on Borrowers business, provided, however, that the Event of Default under this Section 8.6 caused by the occurrence of a breach or default under such other agreement shall be cured or waived for purposes of this Agreement upon Bank receiving written
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notice from the party asserting such breach or default of such cure or waiver of the breach or default under such other agreement, if at the time of such cure or waiver under such other agreement (x) Bank has not declared an Event of Default under this Agreement and/or exercised any rights with respect thereto; (y) any such cure or waiver does not result in an Event of Default under any other provision of this Agreement or any Loan Document; and (z) in connection with any such cure or waiver under such other agreement, the terms of any agreement with such third party are not modified or amended in any manner which could in the good faith business judgment of Bank be materially less advantageous to Borrower;
8.7 Judgments; Penalties. One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;
8.9 Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement; or
8.10 Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in a materially adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) cause, or could reasonably be expected to cause, a Material Adverse Change, or (ii) materially adversely affects the legal qualifications of Borrower to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to materially adversely affect the status of or legal qualifications of Borrower to hold any Governmental Approval in any other jurisdiction.
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9. BANKS RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b) stop advancing money or extending credit for Borrowers benefit under this Agreement or under any other agreement between Borrower and Bank;
(c) demand that Borrower (i) deposit cash with Bank in an amount equal to at least one hundred five percent (105%) of the Dollar Equivalent (or one hundred ten percent (110%) if the Dollar Equivalent is denominated in Foreign Currency) of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;
(d) terminate any FX Contracts;
(e) verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Banks security interest in such funds;
(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Banks rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrowers labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Banks exercise of its rights under this Section, Borrowers rights under all licenses and all franchise agreements inure to Banks benefit;
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(i) place a hold on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(j) demand and receive possession of Borrowers Books; and
(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrowers name on any checks or other forms of payment or security; (b) sign Borrowers name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrowers insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrowers name on any documents necessary to perfect or continue the perfection of Banks security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Banks foregoing appointment as Borrowers attorney in fact, and all of Banks rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Banks obligation to provide Credit Extensions terminates.
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Banks waiver of any Event of Default.
9.4 Application of Payments and Proceeds Upon Default. If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
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9.5 Banks Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6 No Waiver; Remedies Cumulative. Banks failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Banks rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Banks exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Banks waiver of any Event of Default is not a continuing waiver. Banks delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.
10. NOTICES
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
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If to Borrower: | Avidity NanoMedicines LLC | |||
10975 N. Torrey Pines Road | ||||
Suite 150 | ||||
La Jolla, California 92037 | ||||
Attn: | Leigh Elkolli | |||
If to Bank: | Silicon Valley Bank | |||
4370 La Jolla Village Drive, Suite 1050 | ||||
San Diego California 92122 | ||||
Attn: | Anthony Flores, Vice President |
11. CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE
Except as otherwise expressly provided in any of the Loan Documents, California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrowers actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or
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controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
This Section 11 shall survive the termination of this Agreement.
12. GENERAL PROVISIONS
12.1 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied (other than inchoate indemnity obligations). Those obligations that are expressly specified in this Agreement as surviving this Agreements termination shall continue to survive notwithstanding this Agreements termination.
12.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Banks prior written consent (which may be granted or withheld in Banks discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Banks obligations, rights, and benefits under this Agreement and the other Loan Documents (other than the Warrant, as to which assignment, transfer and other such actions are governed by the terms thereof).
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12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an Indemnified Person) harmless against: (i) all obligations, demands, claims, and liabilities (collectively, Claims) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for Claims and/or losses directly caused by such Indemnified Persons gross negligence or willful misconduct.
This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.
12.5 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
12.6 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties.
12.7 Amendments in Writing; Waiver; Integration. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.
12.8 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.
12.9 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Banks Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, Bank Entities); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best
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efforts to obtain any prospective transferees or purchasers agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Banks regulators or as otherwise required in connection with Banks examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Banks possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.
Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Borrower. The provisions of the immediately preceding sentence shall survive termination of this Agreement.
12.10 Attorneys Fees, Costs and Expenses. In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.
12.11 Electronic Execution of Documents. The words execution, signed, signature and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.
12.12 Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.
12.13 Construction of Agreement. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.
12.14 Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arms-length contract.
12.15 Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
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13. DEFINITIONS
13.1 Definitions. As used in the Loan Documents, the word shall is mandatory, the word may is permissive, the word or is not exclusive, the words includes and including are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:
Account is any account as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.
Account Debtor is any account debtor as defined in the Code with such additions to such term as may hereafter be made.
Affiliate is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Persons senior executive officers, directors, partners and, for any Person that is a limited liability company, that Persons managers and members.
Agreement is defined in the preamble hereof.
Authorized Signer is any individual listed in Borrowers Borrowing Resolution who is authorized to execute the Loan Documents, including any Growth Capital Advance request, on behalf of Borrower.
Bank is defined in the preamble hereof.
Bank Entities is defined in Section 12.9.
Bank Expenses are all audit fees and expenses, costs, and expenses (including reasonable attorneys fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
Bank Services are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Banks various agreements related thereto (each, a Bank Services Agreement).
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Basic Rate is the per annum rate of interest (based on a year of 360 days) equal to the sum of (a) U.S. Treasury note yield to maturity for a term equal to the Treasury Note Maturity as reported in the Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Government Securities/Treasury Constant Maturities on the Funding Date, plus (b) three and sixth tenths of one percent (3.60%). (In the event Release H.15 is no longer published, Bank shall select a comparable publication to determine the U.S. Treasury note yield to maturity.)
Borrower is defined in the preamble hereof.
Borrowers Books are all Borrowers books and records including ledgers, federal and state tax returns, records regarding Borrowers assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
Borrowing Resolutions are, with respect to any Person, those resolutions substantially in the form attached hereto as Exhibit D.
Business Day is any day that is not a Saturday, Sunday or a day on which Bank is closed.
Cash Equivalents means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poors Ratings Group or Moodys Investors Service, Inc.; (c) Banks certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.
Claims is defined in Section 12.3.
Code is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Banks Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term Code shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
Collateral is any and all properties, rights and assets of Borrower described on Exhibit A.
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Collateral Account is any Deposit Account, Securities Account, or Commodity Account.
Commodity Account is any commodity account as defined in the Code with such additions to such term as may hereafter be made.
Compliance Certificate is that certain certificate in the form attached hereto as Exhibit B.
Contingent Obligation is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but Contingent Obligation does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
Control Agreement is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
Conversion Date is defined in Section 2.1.1(b).
Copyrights are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
Credit Extension is any Growth Capital Advance, or any other extension of credit by Bank for Borrowers benefit.
Default Rate is defined in Section 2.2(b).
Deposit Account is any deposit account as defined in the Code with such additions to such term as may hereafter be made.
Designated Deposit Account is the multicurrency account denominated in Dollars, account number , maintained by Borrower with Bank.
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Dollars, dollars or use of the sign $ means only lawful money of the United States and not any other currency, regardless of whether that currency uses the $ sign to denote its currency or may be readily converted into lawful money of the United States.
Dollar Equivalent is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.
Domestic Subsidiary is a Subsidiary that is an entity organized under the laws of the United States or any state or territory thereof.
Effective Date is defined in the preamble hereof.
Equipment is all equipment as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
ERISA is the Employee Retirement Income Security Act of 1974, and its regulations.
Event of Default is defined in Section 8.
Exchange Act is the Securities Exchange Act of 1934, as amended.
Final Payment is a payment (in addition to and not a substitution for the regular monthly payments of principal and accrued interest) due on the dates set forth in Sections 2.1.1(c) and 2.3(a), equal to eight percent (8.00%) of the original principal amount of the applicable Growth Capital Advance.
First Tranche Growth Capital Advance is defined in Section 2.1.1(a).
Foreign Currency means lawful money of a country other than the United States.
Foreign Subsidiary is a Subsidiary that is not an entity organized under the laws of the United States or any state or territory thereof.
Funding Date is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.
FX Contract is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.
GAAP is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
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General Intangibles is all general intangibles as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
Good Faith Deposit is defined in Section 2.3(b).
Governmental Approval is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
Governmental Authority is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
Growth Capital Advance and Growth Capital Advances is defined in Section 2.1.1(a).
Growth Capital Commitment is Five Million Dollars ($5,000,000).
Growth Capital Commitment Termination Date is the earlier to occur of (a) March 31, 2016 or (b) an Event of Default.
Growth Capital Maturity Date is, for each Growth Capital Advance, thirty-six (36) months after the Conversion Date for such Growth Capital Advance.
Indebtedness is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.
Indemnified Person is defined in Section 12.3.
Insolvency Proceeding is any proceeding by or against any Person under the United States Bankruptcy Code or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
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Intellectual Property means, with respect to any Person, means all of such Persons right, title, and interest in and to the following:
(a) its Copyrights, Trademarks and Patents;
(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;
(c) any and all source code;
(d) any and all design rights which may be available to such Person;
(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
Interest-Only Period means, for each Growth Capital Advance, a twelve (12) month period, commencing on the Funding Date of each Growth Capital Advance and continuing through the last day of the twelve (12th) consecutive month following such Funding Date.
Inventory is all inventory as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrowers custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
Investment is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.
Key Person is Borrowers Chief Executive Officer, who is Troy Wilson, PHD, JD as of the Effective Date.
Letter of Credit is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.
Lien is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
Loan Documents are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Warrant, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower or any guarantor, and any other present or future agreement by Borrower and/or any guarantor with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.
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Material Adverse Change is (a) a material impairment in the perfection or priority of Banks Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.
Monthly Financial Statements is defined in Section 6.2(a).
Obligations are Borrowers obligations to pay when due any debts, principal, interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents (other than the Warrant), or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrowers duties under the Loan Documents (other than the Warrant).
Operating Documents are, for any Person, such Persons formation documents, as certified by the Secretary of State (or equivalent agency) of such Persons jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
Patents means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
Payment/Advance Form is that certain form attached hereto as Exhibit C.
Perfection Certificate is defined in Section 5.1.
Permitted Acquisition means any Acquisition, consisting of a single transaction or a series of related transactions, by the Borrower in the form of Acquisitions of any other Person if (a) total cash consideration for all such Acquisitions does not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year of Borrower; (b) the Target shall be in a similar line of business as that of the Borrower; (c) the Target shall be a going concern, not involved in any material litigation that is not fully covered by reserves and/or insurance; (d) no Event of Default has occurred and is continuing or would exist after giving effect to such Acquisition; (e) Borrower is the surviving legal entity; (f) no Indebtedness shall be assumed by any Borrower in connection with such Acquisition (other than Indebtedness permitted under clauses (d), (e), (f), and (g) of the definition of Permitted Indebtedness existing at the time of such Acquisition and not incurred in connection therewith); and (g) the Acquisition is not a hostile Acquisition.
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Permitted Indebtedness is:
(a) Borrowers Indebtedness to Bank under this Agreement and the other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of Permitted Liens hereunder;
(g) unsecured Indebtedness not otherwise permitted by Section 7.4 in an aggregate principal amount not to exceed Fifty Thousand Dollars ($50,000) at any time;
(h) unsecured Indebtedness in connection with credit cards incurred in the ordinary course of business not to exceed One Hundred Fifty Thousand Dollars ($150,000);
(i) intercompany Indebtedness that otherwise constitutes an Investment permitted under clause (f) of the definition of Permitted Investments; and
(j) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (i) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investments are:
(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate;
(b) Investments consisting of Cash Equivalents and Investments permitted by Borrowers investment policy;
(c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;
(d) Investments consisting of deposit accounts in which Bank has a perfected security interest;
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
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(f) Investments (i) by Borrower in Subsidiaries (including Subsidiaries formed or acquired after the Effective Date) not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year and (ii) by Subsidiaries in other Subsidiaries (including Subsidiaries formed or acquired after the Effective Date) not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year or in Borrower;
(g) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or managers relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee equity purchase plans or agreements approved by Borrowers Board of Managers;
(h) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;
(i) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary;
(j) Repurchases of equity permitted by Section 7.7;
(k) joint ventures or strategic alliances in the ordinary course of Borrowers business consisting of the non-exclusive licensing of technology, or licensing of technology that could not result in a legal transfer of title of the licensed property that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States the development of technology or the providing of technical support, provided that any cash investments by Borrower do not exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year; and
(l) other Investments not otherwise permitted by Section 7.7 not exceeding Fifty Thousand Dollars ($50,000) in the aggregate outstanding at any time.
Permitted Liens are:
(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;
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(d) Liens of carriers, warehousemen, suppliers, landlords or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens to secure payment of workers compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary course of Borrowers business (or, if referring to another Person, in the ordinary course of such Persons business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrowers business (or, if referring to another Person, in the ordinary course of such Persons business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;
(h) non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business and licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States;
(i) Security deposits under real property leases that are made in the ordinary course of business not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate ay any time;
(j) Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7; and
(k) Liens in favor of other financial institutions arising in connection with Borrowers deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts except to the extent permitted in Section 6.8.
Person is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
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Registered Organization is any registered organization as defined in the Code with such additions to such term as may hereafter be made.
Repayment Period is, for each Growth Capital Advance, a period of time equal to thirty-six (36) consecutive months commencing on the Conversion Date for such Growth Capital Advance.
Requirement of Law is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
Responsible Officer is any of the Chief Executive Officer, Chief Business Officer, President, Chief Financial Officer, Director of Finance, and Controller of Borrower.
Restricted License is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrowers interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Banks right to sell any Collateral.
SEC shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.
Second Tranche Growth Capital Advance is defined in Section 2.1.1(a).
Securities Account is any securities account as defined in the Code with such additions to such term as may hereafter be made.
Subordinated Debt is indebtedness incurred by Borrower subordinated to all of Borrowers now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.
Subsidiary is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.
Trademarks means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
37
Tranche Two Milestone means the date on which Bank receives and approves evidence reasonably satisfactory to Bank, in its sole discretion, that Borrower has successfully identified a pre-development candidate for the PSMA/AR program or another pipeline program identified by Borrower.
Transfer is defined in Section 7.1.
Treasury Note Maturity is thirty-six (36) months.
Warrant is that certain Warrant to Purchase Limited Liability Company Interest dated as of the Effective Date executed by Borrower in favor of Bank, as the same may be amended, modified, supplemented or restated from time to time.
[Signature page follows.]
38
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the Effective Date.
BORROWER: | ||
AVIDITY NANOMEDICINES LLC | ||
By: | /s/ Troy Wilson | |
Name: | Troy Wilson, Ph.D., J.D. | |
Title: | President and Chief Executive Officer |
BANK: | ||
SILICON VALLEY BANK | ||
By: |
/s/ Anthony Flores | |
Name: |
Anthony Flores | |
Title: |
Vice President |
[Signature Page to Loan and Security Agreement]
EXHIBIT A COLLATERAL DESCRIPTION
The Collateral consists of all of Borrowers right, title and interest in and to the following personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and
All Borrowers Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include (a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of equity owned by Borrower of any controlled foreign corporation (as defined in the Internal revenue Code of 1986, as amended) which shares entitle the holder thereof to vote for directors or any other matter, (b) any rights under any lease, instrument, contract or agreement to which Borrower is a party or any rights or interest thereunder if and only for so long as the Banks security interest shall constitute or result in a breach, termination or default under any lease, instrument, contract or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Code, or any other applicable law or principles of equity); provided, however, that upon termination of such prohibition, such interest shall immediately become Collateral without any action by Borrower or Bank, or (c) any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Banks security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.
Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Banks prior written consent.
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK |
Date: | |
FROM: AVIDITY NANOMEDICINES LLC |
The undersigned authorized officer of AVIDITY NANOMEDICINES LLC (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement):
(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenants |
Required |
Complies | ||
Monthly financial statements with Compliance Certificate | Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + CC | FYE within 180 days | Yes No | ||
Financial Projections | FYE within 30 days not later than 7 days after Board approval and more frequently as updated | Yes No |
Other Matters |
||||||||
Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate. | Yes | No | ||||||
The following are the exceptions with respect to the certification above: (If no exceptions exist, state No exceptions to note.) |
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AVIDITY NANOMEDICINES LLC | BANK USE ONLY | |||
Received by: | ||||
By: | AUTHORIZED SIGNER | |||
Name: Title: |
Date: | |||
Verified: | ||||
AUTHORIZED SIGNER | ||||
Date: | ||||
Compliance Status: Yes No |
EXHIBIT C LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME
Fax To:
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Date:
| |
LOAN PAYMENT: | ||
AVIDITY NANOMEDICINES LLC | ||
From Account # | To Account # | |
(Deposit Account #) | (Loan Account #) | |
Principal $ | and/or Interest $ | |
Authorized Signature: | Phone Number: | |
Print Name/Title:
|
||
LOAN ADVANCE: | ||
Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire. | ||
From Account # | To Account # | |
(Loan Account #) | (Deposit Account #) | |
Amount of Advance $ | ||
All Borrowers representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date: | ||
Authorized Signature: | Phone Number: | |
Print Name/Title:
|
||
OUTGOING WIRE REQUEST: | ||
Complete only if all or a portion of funds from the loan advance above is to be wired. | ||
Deadline for same day processing is noon, Pacific Time | ||
Beneficiary Name: | Amount of Wire: $ | |
Beneficiary Bank: | Account Number: | |
City and State: | ||
Beneficiary Bank Transit (ABA) #: | Beneficiary Bank Code (Swift, Sort, Chip, etc.): | |
(For International Wire Only) | ||
Intermediary Bank: | Transit (ABA) #: | |
For Further Credit to: | ||
Special Instruction: | ||
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us). | ||
Authorized Signature: | 2nd Signature (if required): | |
Print Name/Title: | Print Name/Title: | |
Telephone #:
|
Telephone #:
|
EXHIBIT D
Form of Borrowing Resolutions
(see attached)
LIMITED LIABILITY COMPANY BORROWING CERTIFICATE
BORROWER: | AVIDITY NANOMEDICINES LLC |
DATE: August 7, 2015 | ||
BANK: | SILICON VALLEY BANK |
I/We hereby certify as follows, as of the date set forth above:
Borrower is duly organized, existing and in good standing as a
member-managed
manager-managed
limited liability company under the laws of the State of Delaware, and that we are all of Borrowers
members
managers
and that Borrowers name shown above is the exact legal name of Borrower.
We/ I certify that at a duly held meeting of Borrower (or by other authorized company action) the following resolutions were adopted. Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Silicon Valley Bank (Bank) may rely on them until Bank receives written notice of revocation from Borrower.
RESOLVED, that any one of the following individuals, whose names, titles and signatures are below, may act on behalf of Borrower:
Name | Title | Signature | Authorized to Add or Remove Signatories | |||
☐ | ||||||
☐ | ||||||
☐ | ||||||
☐ |
RESOLVED FURTHER, that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf of Borrower.
RESOLVED FURTHER, that such individuals may, on behalf of Borrower:
Borrow Money. Borrow money from Bank.
Execute Loan Documents. Execute any loan documents Bank requires.
Grant Security. Grant Bank a security interest in any of Borrowers assets.
Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.
Apply for Letters of Credit. Apply for letters of credit from Bank.
Enter Derivative Transactions. Execute spot or forward foreign exchange contracts, interest rate swap agreements, or other derivative transactions.
Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they believe to be necessary to effect these resolutions.
RESOLVED FURTHER, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.
The persons listed above are Borrowers members/managers or employees with their titles and signatures shown next to their names.
The execution, delivery, and performance of this Certificate are within the undersigneds powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in the undersigneds operating agreement, nor will they constitute an event of default under any material agreement to which the undersigned is a party or by which the undersigned is bound. No consent from any other party is required to execute this Certificate.
We/I certify that the persons listed below are Borrowers members/managers with their signatures shown above their names.
We/I have read all the provisions of this Limited Liability Company Borrowing Certificate, and we certify and agree to its terms.
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[print name]
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[print name]
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[title]
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[title]
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[print name]
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[print name]
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[title] | [title] |
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FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this Amendment) is entered into June 9, 2017, by and between SILICON VALLEY BANK, a California corporation (Bank), and AVIDITY BIOSCIENCES LLC, a Delaware corporation (Borrower).
RECITALS
A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of August 7, 2015 (as the same may from time to time be amended, modified, supplemented or restated, the Loan Agreement).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower has requested that Bank amend the Loan Agreement to (i) add a new term loan and (ii) make certain other revisions to the Loan Agreement as more fully set forth herein.
D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Existing Growth Capital Advances. Borrower hereby acknowledges that Bank made Growth Capital Advances to Borrower in the original aggregate principal amount not to exceed Five Million Dollars ($5,000,000) (the Existing Growth Capital Term Loan). Borrower acknowledges and agrees that as of the date hereof, the aggregate outstanding principal balance of the Existing Growth Capital Term Loan is Four Million Ninety-Seven Thousand Two Hundred Twenty-Two Dollars and Twenty-Eight Cents ($4,097,222.28). Borrower and Bank acknowledge and agree that there is no further availability to borrow under the Existing Growth Capital Term Loan. Borrower represents and warrants to Bank that all of such sum is due and owing Bank, without offset or defense of any kind or nature and in the event Borrower has any offsets or defenses thereto, Borrower hereby irrevocably waives all such offsets and defenses. Borrower acknowledges and agrees that the execution of this Agreement is not intended to and shall not cause or result in a novation with respect to the Existing Growth Capital Term Loan. Borrower shall, on or about the date hereof, and in conjunction with Borrowers execution of this Amendment, use a portion of the proceeds from the Tranche One Term Loan Advance to repay in full in cash all of the Obligations owing to Bank under the Existing Growth Capital Term Loan, including, without limitation, the amount of the Final Payment due to Bank under the Loan Agreement.
3. Amendments to Loan Agreement.
3.1 Section 2.1 (Promise to Pay). Section 2.1 of the Loan Agreement is hereby amended by adding the following immediately after Section 2.1.1 as Section 2.1.2:
2.1.2 Term Loan Advances.
(a) Availability. Subject to the terms and conditions of this Agreement, upon Borrowers request, Bank shall make term loan advances available to Borrower in an aggregate original principal amount not to exceed Seven Million Dollars ($7,000,000) (each such advance is referred to herein as a Term Loan Advance and, collectively, as the Term Loan Advances) available in two (2) tranches as follows: (i) the first (1st) tranche shall be made on or about the First Amendment Effective Date in the original principal amount equal to Five Million Dollars ($5,000,000) (the Tranche One Term Loan Advance) and (ii) provided that the Tranche Two Term Loan Milestone is satisfied, the second (2nd) tranche shall be available during the Tranche Two Term Loan Draw Period in the aggregate original principal amount not to exceed Two Million Dollars ($2,000,000) (the Tranche Two Term Loan Advance). A portion of the proceeds from the Tranche One Term Loan Advance shall be used to repay in full in cash all of the Obligations owing to Bank under the Growth Capital Advances, including the Final Payment. Each Tranche Two Term Loan Advance must be in an amount equal to at least Five Hundred Thousand Dollars ($500,000). After repayment, no Term Loan Advance (or any portion thereof) may be re-borrowed.
(b) Repayment.
(i) Interest-Only Payments. Borrower shall make monthly payments of interest-only on each Term Loan Advance commencing on the first (1st) calendar day of the first (1st) month following the month in which the Funding Date for such Term Loan Advance occurs and continuing thereafter during the Interest-Only Period on the first (1st) calendar day of each successive month.
(ii) Principal and Interest Payments. Commencing on the first (1st) calendar day of the first (1st) month following the Interest-Only Period for each Term Loan Advance (the Term Loan Conversion Date) and continuing on the first (1st) calendar day of each month thereafter, Borrower shall repay each Term Loan Advance in (i) the Applicable Number of equal monthly installments of principal, plus (ii) monthly payments of accrued interest at the rate set forth in Section 2.2(a). All outstanding principal and accrued and unpaid interest under each Term Loan Advance, and all other outstanding Obligations with respect to such Term Loan Advance, are due and payable in full on the Term Loan Maturity Date.
(c) Permitted Prepayment. At Borrowers option, Borrower shall have the option to prepay all or any part of the Term Loan Advances, provided Borrower (i) delivers written notice to Bank of its election to prepay the Term Loan Advances at least
2
five (5) days prior to such prepayment, and (B) pays, on the date of the prepayment (i) all applicable accrued and unpaid interest with respect to each prepaid Term Loan Advance through the date the prepayment is made; plus (ii) all unpaid principal with respect to such prepaid Term Loan Advance; plus (iii) the applicable portion of the Prepayment Fee plus (iv) the applicable portion of the Term Loan Final Payment; plus (v) all other sums, if any, that shall have become due and payable hereunder with respect to this Agreement. Any partial prepayments, other than the final prepayment, shall each be in an amount of not less than One Hundred Thousand Dollars ($100,000).
(d) Mandatory Prepayment Upon an Acceleration. If the Term Loan Advances are accelerated by Bank following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advances, (ii) the Prepayment Fee, (iii) the Term Loan Final Payment, and (iv) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advances, including interest at the Default Rate with respect to any past due amounts.
3.2 Section 2.2 (Payment of Interest on the Credit Extensions). Section 2.2(a) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
(a) Interest Rate. Subject to Section 2.2(b), the outstanding principal amount of each Term Loan Advance shall accrue interest at a floating per annum rate equal to one-fifth of one percent (0.20%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.2(d) below.
3.3 Section 2.3 (Fees). Section 2.3 of the Loan Agreement is hereby amended by adding the following immediately after clause (d) as clauses (e), (f), and (g), respectively:
(e) Prepayment Fee. The Prepayment Fee when due hereunder;
(f) Term Loan Final Payment. The Term Loan Final Payment when due hereunder; and
(g) Term Loan Good Faith Deposit Fee. Borrower has paid to Bank a deposit of Ten Thousand Dollars ($10,000) (the Term Loan Good Faith Deposit) to initiate Banks due diligence review process. Any portion of the Term Loan Good Faith Deposit not utilized to pay Bank Expenses will be deposited into the Designated Deposit Account.
3.4 Section 3.4 (Procedures for Borrowing). Section 3.4 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of a Term Loan Advance set forth in this Agreement, to obtain a Term Loan Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific
3
time on the Funding Date of a Term Loan Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Term Loan Advances to the Designated Deposit Account. Bank may make Term Loan Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Term Loan Advances are necessary to meet Obligations which have become due.
3.5 Section 6.10 (Access to Collateral; Books and Records). Section 6.10 of the Loan Agreement is hereby amended by deleting the reference to Eight Hundred Fifty Dollars ($850) therein and inserting in lieu thereof One Thousand Dollars ($1,000).
3.6 Section 8.1 (Payment Default). Section 8.1 of the Loan Agreement is hereby amended by deleting the first sentence thereof in its entirety and replacing it with the following:
Borrower fails to (i) make any payment of principal or interest on any Credit Extension when due, or (ii) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Term Loan Maturity Date).
3.7 Section 10 (Notices). Section 10 of the Loan Agreement is hereby amended by deleting Borrowers notice information in its entirety and replacing it with the following:
If to Borrower: Avidity Biosciences LLC
10975 N. Torrey Pines Road, Suite 150
La Jolla, California 92037
Attn: Leigh Elkolli
3.8 Section 13 (Definitions).
(a) The following terms and their respective definitions set forth in Section 13.1 of the Loan Agreement are hereby amended by deleting them in their entirety and replacing them with the following:
Authorized Signer is any individual listed in Borrowers Borrowing Resolution who is authorized to execute the Loan Documents, including any Term Loan Advance request, on behalf of Borrower.
Credit Extension is any Term Loan Advance, or any other extension of credit by Bank for Borrowers benefit.
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Warrant is (a) the Warrant to Purchase Limited Liability Company Series A Preferred Units dated as of the Effective Date executed by Borrower in favor of Bank and (b) the Warrant to Purchase Limited Liability Company Common Units dated as of the First Amendment Effective Date executed by Borrower in favor of Bank, each as the same may be amended, modified, supplemented or restated from time to time.
(b) The following terms and their respective definitions are hereby added to the list set forth in Section 13.1 of the Loan Agreement in alphabetical order:
Applicable Number is thirty-six (36); provided, however, (a) upon Banks receipt of evidence satisfactory to Bank in its sole and absolute discretion that Borrower has, after the First Amendment Effective Date, received milestone payments in the aggregate amount of not less than Two Million Dollars ($2,000,000), the Applicable Number shall automatically be thirty (30), and (b) upon the Funding Date of the initial Tranche Two Term Loan Advance, the Applicable Number shall automatically be twenty-four (24).
First Amendment Effective Date is June 9, 2017.
Prepayment Fee is an additional fee, payable to Bank, with respect to each Term Loan Advance, in an amount equal to (a) two percent (2%) of the aggregate outstanding principal amount of the Term Loan Advances if the prepayment is made on or before the first (1st) anniversary of the Effective Date and (b) one percent (1%) of the aggregate outstanding principal amount of the Term Loan Advances if the prepayment is made after the first (1st) anniversary of the Effective Date but before the Term Loan Maturity Date. Notwithstanding the foregoing, no Prepayment Fee shall be charged if the Term Loan Advances are replaced with a new facility from Bank.
Prime Rate is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the prime rate then in effect; provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement; and provided further that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the Prime Rate shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
Term Loan Advance or Term Loan Advances is defined in Section 2.1.2(a).
Term Loan Conversion Date is defined in Section 2.1.2(b)(ii).
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Term Loan Final Payment is a payment (in addition to and not a substitution for the regular monthly payments of principal and accrued interest) due on the earliest to occur of (a) the Term Loan Maturity Date, (b) the final payment date of each Term Loan Advance, or (c) the prepayment of the Term Loan Advances in full pursuant to Section 2.1.2(d) or 2.1.2(e), equal to the original aggregate principal amount of the Term Loan Advances multiplied by the Term Loan Final Payment Percentage.
Term Loan Final Payment Percentage is six and one-half of one percent (6.50%).
Term Loan Good Faith Deposit is defined in Section 2.3(g).
Term Loan Interest-Only Period is the period commencing on the first (1st) calendar day of the first (1st) month following the month in which the Funding Date for such Term Loan Advance occurs and ending on June 1, 2018; provided, however, (a) upon Banks receipt of evidence satisfactory to Bank in its sole and reasonable discretion that Borrower has, after the First Amendment Effective Date, received milestone payments in the aggregate amount of not less than Two Million Dollars ($2,000,000), the Term Loan Interest-Only Period shall automatically be extended to December 1, 2018, and (b) upon the Funding Date of the initial Tranche Two Term Loan Advance, the Term Loan Interest-Only Period shall automatically be extended to June 1, 2019.
Term Loan Maturity Date is June 1, 2021.
Tranche One Term Loan Advance is defined in Section 2.1.2(a).
Tranche Two Term Loan Advance is defined in Section 2.1.2(a).
Tranche Two Term Loan Draw Period means the period commencing June 30, 2018 and ending September 30, 2018.
Tranche Two Term Loan Milestone means Banks receipt of evidence reasonably satisfactory to Bank that Borrower has, after the Funding Date of the Tranche One Term Loan Advance, (a) closed milestone or up-front payments in the aggregate amount of not less than Four Million Dollars ($4,000,000) and (b) secured one new pharmaceutical partnership.
3.9 Exhibit C (Loan Payment/Advance Request Form). The Payment/Advance Form attached to the Loan Agreement as Exhibit C is replaced in its entirety with the Payment/Advance Form attached hereto as Exhibit C. From and after the date hereof, all references in the Loan Agreement to the Payment/Advance Form shall be deemed to refer to the Payment/Advance Form in the form attached hereto as Exhibit C.
4. Limitation of Amendments.
4.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
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4.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
4.3 In addition to those Events of Default specifically enumerated in the Loan Documents, the failure to comply with the terms of any covenant or agreement contained herein shall constitute an Event of Default and shall entitle Bank to exercise all rights and remedies provided to Bank under the terms of any of the other Loan Documents as a result of the occurrence of the same.
5. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
5.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
5.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
5.3 The organizational documents of Borrower delivered to Bank on the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
5.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
5.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
5.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and
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5.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
6. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
7. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
8. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) due execution and delivery to Bank of the Warrant to Purchase Limited Liability Company Common Units dated as of the date hereof by each party thereto (the 2017 Warrant), (c) Borrowers payment of the Final Payment, (d) Borrowers payment of Banks legal fees and expenses in connection with the negotiation and preparation of this Amendment and the 2017 Warrant.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: | ||
AVIDITY BIOSCIENCES LLC | ||
By: | /s/ Troy Wilson | |
Name: Troy Wilson | ||
Title: President and CEO | ||
BANK: | ||
SILICON VALLEY BANK | ||
By: | /s/ Anthony Flores | |
Name: Anthony Flores | ||
Title: Director |
[Signature Page to First Amendment to Loan and Security Agreement]
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this Amendment) is entered into August 1, 2018, by and between SILICON VALLEY BANK, a California corporation (Bank), and AVIDITY BIOSCIENCES LLC, a Delaware limited liability company (Borrower).
RECITALS
A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of August 7, 2015 (as the same may from time to time be amended, modified, supplemented or restated, the Loan Agreement).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower has requested that Bank amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.
D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Amendments to Loan Agreement.
2.1 Tranche Two Term Loan Advance. Notwithstanding Section 2.1.2 of the Loan Agreement to the contrary, the Tranche Two Term Loan Advance in the aggregate principal amount of up to Two Million Dollars ($2,000,000) is available to Borrower from the date hereof upon Banks receipt of evidence satisfactory to Bank in its sole and absolute discretion that Borrower has received aggregate Gross Proceeds of at least Three Million Dollars ($3,000,000).
2.2 Section 6.2 (Financial Statements, Reports, Certificates). Section 6.2 of the Loan Agreement is hereby amended by adding the following clause (i) immediately after clause (h) thereof:
(i) Beneficial Ownership Information. A prompt written notice of any changes to the beneficial ownership information set out in the Beneficial Ownership Information Disclosure Form. Borrower understands and acknowledges that Bank relies on such true, accurate and up-to-date beneficial ownership information to meet Banks regulatory obligations to obtain, verify and record information about the beneficial owners of its legal entity customers.
2.3 Section 6.7 (Financial Covenants). Section 6.7 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
6.7 Financial Covenants.
(a) Milestone Payments and Pharmaceutical Partnership. Provide to Bank by no later than December 31, 2018 evidence reasonably satisfactory to Bank in its sole and absolute discretion that Borrower has (a) closed milestone or up-front payments in the aggregate amount of not less than Four Million Dollars ($4,000,000) and (b) secured at least one (1) new pharmaceutical partnership (the Milestone and Partnership Covenant). In the event that Borrower fails to comply with the Milestone and Partnership Covenant, Borrower shall immediately pay to Bank (the Mandatory Tranche Two Prepayment) the outstanding principal balance of the Tranche Two Term Loan Advance in the aggregate principal amount of Two Million Dollars ($2,000,000) plus all accrued and unpaid interest thereon. Borrowers failure to make the Mandatory Tranche Two Prepayment shall constitute an immediate Event of Default under this Agreement. For purposes of clarification, Borrowers failure to comply with the Milestone and Partnership Covenant shall not constitute an immediate Event of Default so long as Borrower immediately makes the Mandatory Tranche Two Prepayment.
2.4 Section 8.2 (Covenant Default). Section 8.2(a) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8(b), 6.10 or violates any covenant in Section 7; or
2.5 Section 13 (Definitions).
(a) The following terms and their respective definitions set forth in Section 13.1 of the Loan Agreement are hereby amended by deleting them in their entirety and replacing them with the following:
Applicable Number is thirty-six (36); provided, however, (a) on the Funding Date of the initial Tranche Two Term Loan Advance, the Applicable Number shall automatically be reduced to thirty (30), and (b) upon Banks receipt of evidence satisfactory to Bank in its sole and absolute discretion that Borrower has, after the First Amendment Effective Date, satisfied the Milestone and Partnership Covenant, the Applicable Number shall automatically be reduced to twenty-four (24).
Term Loan Interest-Only Period is the period commencing on the first (1st) calendar day of the first (1st) month following the month in which the Funding Date for such Term Loan Advance occurs and ending on June 1, 2018; provided, however, (a) on the Funding Date of the Tranche Two Term Loan Advance in the amount of Two Million Dollars ($2,000,000) subject to the terms and conditions herein, the Term Loan Interest-Only Period shall automatically be extended to December 1, 2018, and (b) upon
2
Banks receipt of evidence satisfactory to Bank in its sole and reasonable discretion that Borrower has, after the First Amendment Effective Date, satisfied the Milestone and Partnership Covenant, the Term Loan Interest-Only Period shall automatically be extended to June 1, 2019.
(b) The following defined terms are hereby added to the list set forth in Section 13.1 of the Loan Agreement in alphabetical order:
Financing means a new bona fide round of equity financing or Subordinated Debt with investors and on terms satisfactory to Bank in its sole discretion.
Gross Proceeds means the gross proceeds (in cash) received by Borrower from a Financing,.
2.6 Exhibit B (Compliance Certificate). Exhibit B to the Loan Agreement is hereby replaced in its entirety with Exhibit B attached hereto. From and after the date hereof, all references in the Loan Agreement to the Compliance Certificate shall be deemed to refer to the Compliance Certificate attached hereto as Exhibit B.
3. Limitation of Amendments.
3.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
3.3 In addition to those Events of Default specifically enumerated in the Loan Documents, the failure to comply with the terms of any covenant or agreement contained herein shall constitute an Event of Default and shall entitle Bank to exercise all rights and remedies provided to Bank under the terms of any of the other Loan Documents as a result of the occurrence of the same.
4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
3
4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
4.3 The organizational documents of Borrower delivered to Bank on the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and
4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
5. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
6. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
7. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, and (b) Borrowers payment of Banks legal fees and expenses in connection with the negotiation and preparation of this Amendment.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: | ||
AVIDITY BIOSCIENCES LLC | ||
By: | /s/ Troy Wilson | |
Name: | ||
Title: |
BANK: | ||
SILICON VALLEY BANK | ||
By: | /s/ Kristine Rohmer | |
Name: | Kristine Rohmer | |
Title: | Vice President |
[Signature Page to Second Amendment to Loan and Security Agreement]
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK |
Date: |
FROM: AVIDITY BIOSCIENCES LLC
The undersigned authorized officer of AVIDITY BIOSCIENCES LLC (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement):
(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenants |
Required |
Complies | ||
Monthly financial statements with Compliance Certificate |
Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + CC |
FYE within 180 days | Yes No | ||
Financial Projections |
FYE within 30 days not later than 7 days after Board approval and more frequently as updated | Yes No |
Financial Covenant |
Complies | |
Borrower has: |
||
(a) Closed milestone or up-front payments in the aggregate amount of at least $4,000,000 and (b) secured at least 1 new pharmaceutical partnership by December 31, 2018 |
Yes No | |
(i) If Borrower fails to meet clause (a), paid unpaid principal with respect to the Tranche Two Term Loan Advance plus all accrued and unpaid interest thereon |
Yes No |
Other Matters
Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate. | Yes No |
The following are the exceptions with respect to the certification above: (If no exceptions exist, state No exceptions to note.)
AVIDITY BIOSCIENCES LLC | BANK USE ONLY | |||||||
By: | Received by: | |||||||
Name: | AUTHORIZED SIGNER | |||||||
Title: | Date: | |||||||
Verified: | ||||||||
AUTHORIZED SIGNER | ||||||||
Date: | ||||||||
Compliance Status: Yes No |
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this Amendment) is entered into December 27, 2018, by and between SILICON VALLEY BANK, a California corporation (Bank), and AVIDITY BIOSCIENCES LLC, a Delaware limited liability company (Borrower).
RECITALS
A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of August 7, 2015 (as the same may from time to time be amended, modified, supplemented or restated, the Loan Agreement).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower has requested that Bank amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.
D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Amendments to Loan Agreement.
2.1 Section 6.7 (Financial Covenants). Section 6.7 of the Loan Agreement is hereby amended by deleting the first sentence thereof in its entirety and replacing it with the following:
Provide to Bank by no later than January 31, 2019 evidence reasonably satisfactory to Bank in its sole and absolute discretion that Borrower has (a) closed milestone or up-front payments in the aggregate amount of not less than Four Million Dollars ($4,000,000) and (b) secured at least one (1) new pharmaceutical partnership (the Milestone and Partnership Covenant).
2.2 Exhibit B (Compliance Certificate). Exhibit B to the Loan Agreement is hereby replaced in its entirety with Exhibit B attached hereto. From and after the date hereof, all references in the Loan Agreement to the Compliance Certificate shall be deemed to refer to the Compliance Certificate attached hereto as Exhibit B.
3. Limitation of Amendments.
3.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
3.3 In addition to those Events of Default specifically enumerated in the Loan Documents, the failure to comply with the terms of any covenant or agreement contained herein shall constitute an Event of Default and shall entitle Bank to exercise all rights and remedies provided to Bank under the terms of any of the other Loan Documents as a result of the occurrence of the same.
4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
4.3 The organizational documents of Borrower delivered to Bank on the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
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4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and
4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
5. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
6. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
7. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, and (b) Borrowers payment of Banks legal fees and expenses in connection with the negotiation and preparation of this Amendment.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER:
AVIDITY BIOSCIENCES LLC
By: | /s/ Troy Wilson | |
Name: | ||
Title: |
BANK: | ||
SILICON VALLEY BANK | ||
By: | /s/ Kristine Rohmer | |
Name: | Kristine Rohmer | |
Title: | Vice President |
[Signature Page to Third Amendment to Loan and Security Agreement]
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:
FROM: AVIDITY BIOSCIENCES LLC
The undersigned authorized officer of AVIDITY BIOSCIENCES LLC (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement):
(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenants |
Required |
Complies | ||
Monthly financial statements with Compliance Certificate | Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + CC | FYE within 180 days | Yes No | ||
Financial Projections | FYE within 30 days not later than 7 days after Board approval and more frequently as updated | Yes No |
Financial Covenant |
Complies |
|||
Borrower has: |
||||
(a) Closed milestone or up-front payments in the aggregate amount of at least $4,000,000 and (b) secured at least 1 new pharmaceutical partnership by January 31, 2019 |
Yes No | |||
(i) If Borrower fails to meet clause (a), paid unpaid principal with respect to the Tranche Two Term Loan Advance plus all accrued and unpaid interest thereon |
Yes No |
Other Matters |
||||
Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate. | Yes | No |
The following are the exceptions with respect to the certification above: (If no exceptions exist, state No exceptions to note.)
AVIDITY BIOSCIENCES LLC | BANK USE ONLY | |||||||
By: |
|
Received by: |
| |||||
Name: | AUTHORIZED SIGNER | |||||||
Title: | Date: |
| ||||||
Verified: |
| |||||||
AUTHORIZED SIGNER | ||||||||
Date: |
| |||||||
Compliance Status: Yes No |
DEFAULT WAIVER AND FOURTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
THIS DEFAULT WAIVER AND FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this Amendment) is entered into February 25, 2019, by and between SILICON VALLEY BANK, a California corporation (Bank), and AVIDITY BIOSCIENCES LLC, a Delaware limited liability company (Borrower).
RECITALS
A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of August 7, 2015 (as the same may from time to time be amended, modified, supplemented or restated, the Loan Agreement).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower is currently in default of the Loan Agreement for failing to comply with the Mandatory Tranche Two Prepayment covenant set forth in Section 6.7(a) of the Loan Agreement (the Existing Default).
D. Borrower has requested that Bank waive the Existing Default and amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.
E. Bank has agreed to waive the Existing Default and so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Waiver of Existing Default. Borrower acknowledges and agrees that unless the Existing Default is waived by Bank, such Existing Default would constitute an Event of Default under the Loan Documents. Bank hereby waives the Existing Default and waives any right and remedies against Borrower under the Loan Documents solely with respect to the Existing Default. Banks agreement to waive the Existing Default shall in no way obligate Bank to make any other modifications to the Loan Agreement or to waive Borrowers compliance with any other terms of the Loan Documents, and shall not limit or impair Banks right to demand strict performance of all other terms and covenants of the Loan Agreement or any of the Loan Documents as of any date. The waiver set forth above shall not be deemed or otherwise construed to constitute a waiver of any other provisions of the Loan Agreement or any of the Loan Documents in connection with any other transaction.
3. Amendments to Loan Agreement.
3.1 Section 6.7 (Financial Covenants).
(a) Section 6.7 of the Loan Agreement is hereby amended by deleting the first sentence thereof in its entirety and replacing it with the following:
Provide to Bank, evidence reasonably satisfactory to Bank, in its sole and absolute discretion, by no later than (a) February 28, 2019, that Borrower has signed a definitive agreement for the Milestone Payments and Pharmaceutical Partnership Transaction and (b) April 15, 2019, that the Milestone Payments and Pharmaceutical Partnership Transaction has closed and Borrower has received all funds due to Borrower upon the closing of the Milestone Payments and Pharmaceutical Partnership Transaction (the Milestone and Partnership Covenant).
(b) Section 6.7 of the Loan Agreement is hereby amended by adding the following clause (b) immediately after clause (a) thereof:
(b) Minimum Liquidity. Maintain at all times, through and including the date on which Borrower satisfies the Milestone and Partnership Covenant, unrestricted and unencumbered (other than Liens in favor of Bank or Banks Affiliates) cash with Bank of at least Two Million Dollars ($2,000,000).
3.2 Section 13 (Definitions). The following defined term is hereby added to Section 13.1 of the Loan Agreement in alphabetical order:
Milestone Payments and Pharmaceutical Partnership Transaction means (a) milestone or up-front payments in the aggregate amount of not less than Four Million Dollars ($4,000,000) and (b) securing at least one (1) new pharmaceutical partnership.
3.3 Exhibit B (Compliance Certificate). Exhibit B to the Loan Agreement is hereby replaced in its entirety with Exhibit B attached hereto. From and after the date hereof, all references in the Loan Agreement to the Compliance Certificate shall be deemed to refer to the Compliance Certificate attached hereto as Exhibit B.
4. Limitation of Waiver and Amendments.
4.1 The waiver and amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
4.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
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4.3 In addition to those Events of Default specifically enumerated in the Loan Documents, the failure to comply with the terms of any covenant or agreement contained herein shall constitute an Event of Default and shall entitle Bank to exercise all rights and remedies provided to Bank under the terms of any of the other Loan Documents as a result of the occurrence of the same.
5. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
5.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default (other than the Existing Default) has occurred and is continuing;
5.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
5.3 The organizational documents of Borrower delivered to Bank on the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
5.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
5.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
5.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and
5.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
16
6. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
7. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
8. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto and (b) Borrowers payment of Banks legal fees and expenses in connection with the negotiation and preparation of this Amendment.
[Signature page follows.]
17
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER: | ||
AVIDITY BIOSCIENCES LLC | ||
By: | /s/ Troy Wilson | |
Name: Troy Wilson | ||
Title: President & CEO | ||
BANK: | ||
SILICON VALLEY BANK | ||
By: | /s/ Kristine Rohmer | |
Name: Kristine Rohmer | ||
Title: Vice President |
[Signature Page to Default Waiver and Fourth Amendment to Loan and Security Agreement]
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:
FROM: AVIDITY BIOSCIENCES LLC
The undersigned authorized officer of AVIDITY BIOSCIENCES LLC (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement):
(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenants |
Required |
Complies | ||
Monthly financial statements with Compliance Certificate | Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + CC | FYE within 180 days | Yes No | ||
Financial Projections | FYE within 30 days not later than 7 days after Board approval and more frequently as updated | Yes No |
[Signature Page to Default Waiver and Fourth Amendment to Loan and Security Agreement]
Financial Covenants |
Required | Actual | Complies | |||||||||
Borrower has: |
||||||||||||
Definitive agreement by February 28, 2019 and closed and funded by April 15, 2019 for: (a) milestone or up-front payments in the aggregate amount of at least $4,000,000 and (b) securing at least 1 new pharmaceutical partnership |
Yes No | |||||||||||
(i) If Borrower fails to meet clause (a), paid unpaid principal with respect to the Tranche Two Term Loan Advance plus all accrued and unpaid interest thereon |
Yes No | |||||||||||
Borrower maintains at all times through and including the date on which Borrower satisfies the Milestone and Partnership Covenant: | ||||||||||||
Unrestricted and unencumbered cash at Bank |
³ | $2,000,000 | $ | Yes No |
Other Matters |
||||
Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate. | Yes | No |
The following are the exceptions with respect to the certification above: (If no exceptions exist, state No exceptions to note.)
AVIDITY BIOSCIENCES LLC | BANK USE ONLY | |||
Received by: | ||||
By: | AUTHORIZED SIGNER | |||
Name: Title: |
Date: | |||
Verified: | ||||
AUTHORIZED SIGNER | ||||
Date: | ||||
Compliance Status: Yes No |
DEFAULT WAIVER AND FIFTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
THIS DEFAULT WAIVER AND FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this Amendment) is entered into April 12, 2019, by and between SILICON VALLEY BANK, a California corporation (Bank), and AVIDITY BIOSCIENCES, INC. (formerly known as AVIDITY BIOSCIENCES LLC), a Delaware corporation (Borrower).
RECITALS
A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of August 7, 2015 (as the same may from time to time be amended, modified, supplemented or restated, the Loan Agreement).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower is currently in default of the Loan Agreement for failing to comply with the Milestone and Partnership Covenant set forth in Section 6.7 of the Loan Agreement (the Existing Default).
D. Borrower has requested that Bank waive the Existing Default and amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.
E. Bank has agreed to waive the Existing Default and so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Waiver of Existing Default. Borrower acknowledges and agrees that unless the Existing Default is waived by Bank, such Existing Default would constitute an Event of Default under the Loan Documents. Bank hereby waives the Existing Default and waives any right and remedies against Borrower under the Loan Documents solely with respect to the Existing Default. Banks agreement to waive the Existing Default shall in no way obligate Bank to make any other modifications to the Loan Agreement or to waive Borrowers compliance with any other terms of the Loan Documents, and shall not limit or impair Banks right to demand strict performance of all other terms and covenants of the Loan Agreement or any of the Loan Documents as of any date. The waiver set forth above shall not be deemed or otherwise construed to constitute a waiver of any other provisions of the Loan Agreement or any of the Loan Documents in connection with any other transaction.
3. Amendments to Loan Agreement.
3.1 Section 6.7 (Financial Covenants).
(a) Section 6.7(a) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
(a) Milestone Payments and Pharmaceutical Partnership. Provide to Bank evidence reasonably satisfactory to Bank, in its sole and absolute discretion, by no later than April 30, 2019, that (a) Borrower has signed a definitive agreement for the Milestone Payments and Pharmaceutical Partnership Transaction and (b) the Milestone Payments and Pharmaceutical Partnership Transaction has closed and Borrower has received all funds due to Borrower upon the closing of the Milestone Payments and Pharmaceutical Partnership Transaction (the Milestone and Partnership Covenant). In the event that Borrower fails to comply with the Milestone and Partnership Covenant, Bank shall apply the funds in the Pledged Account to the outstanding principal balance of the Tranche Two Term Loan Advance plus all accrued and unpaid interest thereon and the Term Loan Final Payment (the Mandatory Tranche Two Prepayment). Borrowers failure to make the Mandatory Tranche Two Prepayment shall constitute an immediate Event of Default under this Agreement. For purposes of clarification, Borrowers failure to comply with the Milestone and Partnership Covenant shall not constitute an immediate Event of Default so long as Borrower immediately makes the Mandatory Tranche Two Prepayment.
(b) Section 6.7(b) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
(b) Pledged Account. Maintain, at all times through and including the date on which Borrower satisfies the Cash Pledge Release Milestone, unrestricted funds in the Pledged Account of at least the Minimum Pledged Account Value.
3.2 Section 13 (Definitions).
(a) The following defined term set forth in Section 13.1 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:
Loan Documents are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Warrant, the Cash Pledge Agreement, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower or any guarantor, and any other present or future agreement by Borrower and/or any guarantor with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.
22
(b) The following defined terms are hereby added to Section 13.1 of the Loan Agreement in alphabetical order:
Cash Pledge Agreement is that certain Bank Services Cash Pledge Agreement between Bank and Borrower dated as of April , 2019 with respect to the Pledged Account, as the same may from time to time be amended, modified, supplemented or restated.
Cash Pledge Release Milestone is Banks receipt of evidence reasonably satisfactory to Bank, in its sole and absolute discretion, that the Milestone Payments and Pharmaceutical Partnership Transaction has closed and Borrower has received all funds due to Borrower upon the closing of the Milestone Payments and Pharmaceutical Partnership Transaction.
Minimum Pledged Account Value means One Million Eight Hundred Sixty-Three Thousand Three Hundred Thirty-Three Dollars and Thirty-Two Cents ($1,863,333.32).
Pledged Account is the multicurrency account denominated in Dollars, account number (last 4 digits only), maintained by Borrower with Bank and pledged to Bank pursuant to the Cash Pledge Agreement to secure the payment and performance in full of all of the Obligations, together with any successor to such account, irrespective of whether the successor account bears a different name or account number and including any account to which the assets contained in the Pledged Account have been transferred.
3.3 Release of Cash Pledge Agreement. Provided that no Event of Default has occurred and is continuing, if Borrower achieves the Cash Pledge Release Milestone, Bank will, at Borrowers sole cost and expense, promptly release Banks security interest in the Pledged Account and terminate the Cash Pledge Agreement.
3.4 Exhibit B (Compliance Certificate). Exhibit B to the Loan Agreement is hereby replaced in its entirety with Exhibit B attached hereto. From and after the date hereof, all references in the Loan Agreement to the Compliance Certificate shall be deemed to refer to the Compliance Certificate attached hereto as Exhibit B.
4. Limitation of Waiver and Amendments.
4.1 The waiver and amendments set forth in Sections 2 and 3, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
4.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.
4.3 In addition to those Events of Default specifically enumerated in the Loan Documents, the failure to comply with the terms of any covenant or agreement contained herein shall constitute an Event of Default and shall entitle Bank to exercise all rights and remedies provided to Bank under the terms of any of the other Loan Documents as a result of the occurrence of the same.
23
5. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:
5.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default (other than the Existing Default) has occurred and is continuing;
5.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;
5.3 The organizational documents of Borrower delivered to Bank on the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;
5.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;
5.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
5.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and
5.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors rights.
6. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
24
7. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
8. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) the due execution and delivery to Bank of the Cash Pledge Agreement by each party thereto, and (c) Borrowers payment of Banks legal fees and expenses in connection with the negotiation and preparation of this Amendment.
[Signature page follows.]
25
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BORROWER:
AVIDITY BIOSCIENCES, INC.
By: | /s/ Troy Wilson | |
Name: | ||
Title: | ||
BANK: | ||
SILICON VALLEY BANK | ||
By: | /s/ Kristine Rohmer | |
Name: | Kristine Rohmer | |
Title: | Vice President |
[Signature Page to Default Waiver and Fifth Amendment to Loan and Security Agreement]
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:
FROM: AVIDITY BIOSCIENCES, INC.
The undersigned authorized officer of AVIDITY BIOSCIENCES, INC. (Borrower) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the Agreement):
(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under Complies column.
Reporting Covenants |
Required |
Complies | ||
Monthly financial statements with Compliance Certificate | Monthly within 30 days | Yes No | ||
Annual financial statement (CPA Audited) + CC | FYE within 180 days | Yes No | ||
Financial Projections | FYE within 30 days not later than 7 days after Board approval and more frequently as updated | Yes No |
Financial Covenants |
Required | Actual | Complies | |||||||||
Borrower has: |
||||||||||||
Definitive agreement and closed and funded by April 30, 2019 for: (a) milestone or up-front payments in the aggregate amount of at least $4,000,000 and (b) securing at least 1 new pharmaceutical partnership |
Yes No | |||||||||||
(i) If Borrower fails to meet clause (a), applied the amount of funds in the Pledged Account to the unpaid principal with respect to the Tranche Two Term Loan Advance plus all accrued and unpaid interest thereon and the Term Loan Final Payment |
Yes No | |||||||||||
Maintain minimum cash in the Pledged Account through and including the date Borrower satisfies the Cash Pledge Release Milestone | ³ | $1,863,333.32 | $ |
Other Matters |
||||
Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries? If yes, provide copies of any such amendments or changes with this Compliance Certificate. | Yes | No |
The following are the exceptions with respect to the certification above: (If no exceptions exist, state No exceptions to note.)
AVIDITY BIOSCIENCES, INC. | BANK USE ONLY | |||
Received by: | ||||
By: | AUTHORIZED SIGNER | |||
Name: Title: |
Date: | |||
Verified: | ||||
AUTHORIZED SIGNER | ||||
Date: | ||||
Compliance Status: Yes No |
Exhibit 10.13
LEASE AGREEMENT
THIS LEASE AGREEMENT (this Lease) is made this 31 day of March, 2014, between ARE-10933 NORTH TORREY PINES, LLC, a Delaware limited liability company (Landlord), and AVIDITY NANOMEDICINES LLC, a Delaware limited liability company (Tenant).
Building: | 10975 North Torrey Pines, La Jolla, CA 92037 | |||
Premises: | That portion of the first floor of the Building, containing approximately 8,561 rentable square feet, as determined by Landlord, as shown on Exhibit A. | |||
Project: | The real property on which the Building in which the Premises are located, together with all improvements thereon and appurtenances thereto as described on Exhibit B. | |||
Base Rent: | $3.25 per rentable square foot of the Premises per month, subject to adjustment pursuant to Section 4 hereof. |
Rentable Area of Premises: 8,561 sq. ft. | ||||
Rentable Area of Building: 44,733 sq. ft. | Rentable Area of Project: 226,999 sq. ft. | |||
Tenants Share of Operating Expenses of Building: 19.14% | ||||
Tenants Share of Operating Expenses of Project: 3.77% | ||||
Security Deposit: $27,823.25 | ||||
Rent Adjustment Percentage: 3% | Target Commencement Date: July 1, 2014 |
Base Term: | Beginning on the Commencement Date and ending on November 30, 2017. | |||
Permitted Use: | Research and development laboratory, related office and other related uses consistent with the character of the Project and otherwise in compliance with the provisions of Section 7 hereof. |
Address for Rent Payment: | Landlords Notice Address: | |||
P.O. Box 79840 | 385 E. Colorado Boulevard, Suite 299 |
|||
Baltimore, MD 21279-0840 | Pasadena, CA 91101 |
|||
Attention: Corporate Secretary |
||||
Tenants Notice Address: |
||||
10975 North Torrey Pines Road, Suite 150 |
||||
La Jolla, CA 92037 |
||||
Attention: Chief Business Officer |
The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:
[X] EXHIBIT A - PREMISES DESCRIPTION | [X] EXHIBIT B - DESCRIPTION OF PROJECT | |||
[X] EXHIBIT C - WORK LETTER | [X] EXHIBIT D - COMMENCEMENT DATE | |||
[X] EXHIBIT E - RULES AND REGULATIONS | [X] EXHIBIT F - TENANTS PERSONAL PROPERTY | |||
[X] EXHIBIT G INTENTIONALLY OMITTED | [X] EXHIBIT H - LANDLORDS FURNITURE |
1. Lease of Premises. Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively
referred to herein as the Common Areas. Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenants use of the Premises for the Permitted Use.
2. Delivery; Acceptance of Premises; Commencement Date. Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date, with Landlords Work Substantially Completed (Delivery or Deliver). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 90 days of the Target Commencement Date for any reason other than Force Majeure delays and Tenant Delays, this Lease may be terminated by Landlord or Tenant by written notice to the other, and if so terminated by either: (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. As used herein, the terms Landlords Work, Tenants Work, and Force Majeure Delays shall have the meanings set forth for such terms in the Work Letter. If neither Landlord nor Tenant elects to void this Lease within 10 business days of the lapse of such 90 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect; provided, however, that if Landlord does not Deliver the Premises within 150 days of the Target Commencement Date for any reason other than Force Majeure delays and Tenant Delays, this Lease may be terminated by Tenant by written notice to Landlord, in which case subsections (a) and (b) of this paragraph shall apply. If Tenant does not elected to void this Lease within 10 business days of the lapse of such 150 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect.
The Commencement Date shall be the earlier of: (i) the date Landlord Delivers the Premises to Tenant; or (ii) the date Landlord could have Delivered the Premises but for Tenant Delays. The Rent Commencement Date shall be the date that is 2 months after the Commencement Date (i.e., Base Rent shall be abated for the first two (2) months of the Base Term). Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Commencement Date, the Rent Commencement Date and the expiration date of the Term when such are established in the form of the Acknowledgement of Commencement Date attached to this Lease as Exhibit D; provided, however, Tenants failure to execute and deliver such acknowledgment shall not affect Landlords rights hereunder. The Term of this Lease shall be the Base Term, as defined above on the first page of this Lease.
During the Term, Tenant shall have the right to use the furniture and equipment belonging to Landlord described on Exhibit H attached to this Lease and located within the Premises on the Commencement Date (Landlords Furniture). Tenant shall have no right to remove any of Landlords Furniture from the Premises without Landlords prior written consent and Landlords Furniture shall be returned to Landlord at the expiration or earlier termination of the Term in substantially the same condition as received by Tenant, except for ordinary wear and tear and casualty.
Except as set forth in the Work Letter or otherwise expressly set forth in this Lease: (i) Tenant shall accept the Premises and Landlords Furniture in their condition as of the Commencement Date; (ii) Landlord shall have no obligation for any defects in the Premises or Landlords Furniture; and (iii) Tenants taking possession of the Premises and Landlords Furniture shall be conclusive evidence that Tenant accepts the Premises and Landlords Furniture. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, excluding the obligation to pay Base Rent.
For the period of 30 consecutive days after the Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any repairs that are required to be made to the Building Systems serving the Premises, unless Tenant or any Tenant Party was responsible for the cause of such repair, in which case Tenant shall pay the cost.
Except as otherwise expressly set forth in this Lease, Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises, Landlord Furniture or the Project, and/or the suitability of the Premises, Landlords Furniture or the Project for the conduct of Tenants business, and Tenant waives any implied warranty that the Premises, Landlords Furniture or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenants representations, warranties, acknowledgments and agreements contained herein.
3. Rent.
(a) Base Rent. Base Rent for the first full month after the Rent Commencement Date occurs and the Security Deposit shall be due and payable on delivery of an executed copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof after the Rent Commencement Date, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5) due hereunder except for any abatement as may be expressly provided in this Lease.
(b) Additional Rent. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (Additional Rent): (i) Tenants Share of Operating Expenses (as defined in Section 5), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.
4. Base Rent Adjustments. Base Rent shall be increased on each annual anniversary of the first day of the first full month during the Term of this Lease (each an Adjustment Date) by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such Adjustment Date. Base Rent, as so adjusted, shall thereafter be due as provided herein. Base Rent adjustments for any fractional calendar month shall be prorated.
5. Operating Expense Payments. Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the Annual Estimate), which may be revised by Landlord from time to time during such calendar year. Commencing on the Commencement Date and continuing thereafter on the first day of each month during the Term, Tenant shall pay Landlord an amount equal to 1112th of Tenants Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.
The term Operating Expenses means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Building (including the Buildings Share of all costs and expenses of any kind or description incurred or accrued by Landlord with respect to the Project which are not specific to the Building or any other building located in the Project) (including, without duplication, Taxes (as defined in Section 9), capital repairs and improvements amortized over the lesser of 10 years and the useful life of such capital items, and the costs of Landlords third party property manager (not to exceed 3.0% of Base Rent) or, if there is no third party property manager, administration rent in the amount of 3.0% of Base Rent), excluding only:
(a) the original construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation;
(b) capital expenditures for expansion of the Project;
(c) interest, principal payments of Mortgage (as defined in Section 27) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured;
(d) depreciation of the Project (except for capital improvements, the cost of which are permitted pursuant to this Section 5 to be included in Operating Expenses);
(e) advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;
(f) legal and other expenses incurred in the negotiation or enforcement of leases;
(g) completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;
(h) costs to be reimbursed by other tenants of the Project or third parties, or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;
(i) salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project (which costs shall be prorated if such officers and employees are assigned to the Project only in part in proportion to the amount of time spent by such employee on the Project);
(j) general organizational, administrative and overhead costs relating to maintaining Landlords existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;
(k) costs (including attorneys fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;
(I) costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7);
(m) penalties, fines or interest incurred as a result of Landlords inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlords failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;
(n) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;
(o) costs of Landlords charitable or political contributions, or of fine art maintained at the Project;
(p) costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;
(q) costs incurred in the sale or refinancing of the Project;
(r) net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein;
(s) any costs incurred to remove, study, test or remediate Hazardous Materials in or about the Building or the Project (provided, however, that the foregoing is in no event intended to limit Tenants obligations under Section 28 or Section 30 of this Lease);
(t) costs of removing abandoned HVAC and other equipment and related pipes, conduit and fixtures from the roof, or relocating antenna equipment of third parties unrelated to Tenant;
(u) reserves;
(v) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by insurance (or would have been reimbursed by insurance required to be carried by Landlord pursuant to Section 17);
(w) costs in connection with the Amenities (as defined in Section 39) other than the Amenities Fee (as defined in Section 39) payable by Tenant pursuant to Section 39;
(x) costs occasioned by condemnation; and
(y) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project;
Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an Annual Statement) showing in reasonable detail: (a) the total and Tenants Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenants payments in respect of Operating Expenses for such year. If Tenants Share of actual Operating Expenses for such year exceeds Tenants payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenants payments of Operating Expenses for such year exceed Tenants Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.
The Annual Statement shall be final and binding upon Tenant unless Tenant, within 90 days after Tenants receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. If, during such 90 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlords statement of Tenants Share of Operating Expenses, Landlord will provide Tenant with access to Landlords books and records relating to the operation of the Project and such information as Landlord reasonably and in good faith determines to be responsive to Tenants questions (the Expense Information). If after Tenants review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenants Share of Operating Expenses, then Tenant shall have the right to have an independent regionally recognized public accounting firm selected by Tenant, working pursuant to a fee arrangement other than a contingent fee (at Tenants sole cost and expense) and approved by Landlord (which approval shall not be unreasonably withheld or delayed), audit and/or review the Expense Information for the year in question (the Independent Review). The results of any such Independent Review shall be binding on Landlord and
Tenant. If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenants Share of Operating Expenses for such calendar year, Landlord shall at Landlords option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. If the Independent Review shows that Tenants payments with respect to Operating Expenses for such calendar year were less than Tenants Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5%, then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review. Operating Expenses for the calendar years in which Tenants obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term, Tenants Share of Operating Expenses for such year with respect to Variable Operating Expenses shall be computed as though the Project had been 95% occupied on average during such year. Variable Operating Expenses shall mean those Operating Expenses which vary by occupancy including, without limitation, electricity, trash removal and other Utilities (as defined in Section 11).
Tenants Share shall be the percentage set forth on the first page of this Lease as Tenants Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Landlord may equitably increase Tenants Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenants Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as Rent.
6. Security Deposit. Tenant shall deposit with Landlord, upon delivery of an executed copy of this Lease to Landlord, a security deposit (the Security Deposit) for the performance of all of Tenants obligations hereunder in the amount set forth on page 1 of this Lease, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the Letter of Credit): (i) in form and substance reasonably satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution reasonably satisfactory to Landlord, and (v) redeemable by presentation of a sight draft in the State of California. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenants obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlords damages in case of Tenants default. Upon each occurrence of a Default (as defined in Section 20), Landlord may use all or any part of the Security Deposit to pay delinquent payments due under this Lease, future rent damages under California Civil Code Section 1951.2, and the cost of any damage, injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law. Landlords right to use the Security Deposit under this Section 6 includes the right to use the Security Deposit to pay future rent damages following the termination of this Lease pursuant to Section 21(c) below. Upon any use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth on Page 1 of this Lease. Tenant hereby waives the provisions of any law, now or hereafter in force, including, without limitation, California Civil Code Section 1950.7, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Upon bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of
Rent and other charges due Landlord for periods prior to the filing of such proceedings. Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 days after demand from Landlord, restore the Security Deposit to its original amount. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlords option, to the last assignee of Tenants interest hereunder) within 60 days after the expiration or earlier termination of this Lease.
If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer, at Landlords expense, any Security Deposit then held by Landlord to a person or entity assuming Landlords obligations under this Section 6, or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenants right to the return of the Security Deposit shall apply solely against Landlords transferee. The Security Deposit is not an advance rental deposit or a measure of Landlords damages in case of Tenants default. Landlords obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon.
7. Use. The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, ADA) (collectively, Legal Requirements and each, a Legal Requirement). Tenant shall, upon 5 days written notice from Landlord, discontinue any use of the Premises which is declared by any Governmental Authority (as defined in Section 9) having jurisdiction to be a violation of a Legal Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenants or Landlords insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a place of public accommodation, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenants failure to comply with the provisions of this Section or otherwise caused by Tenants use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment which will overload the floor in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Except as may be provided under the Work Letter, Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenants Share as usually furnished for the Permitted Use.
Landlord shall be responsible for the compliance of the Common Areas of the Project (but not the Premises) with the Legal Requirements as of the Commencement Date (including compliance of the Common Areas of the Project with Legal Requirements triggered by Landlords Work). Landlord shall, as an Operating Expense (to the extent such Legal Requirement is generally applicable to similar buildings in the area in which the Project is located) make any alterations or modifications to the Project that are required by Legal Requirements, including the ADA, unless such alterations or modifications are triggered by reason of Tenants, as compared to other tenants of the Project, particular use of the Premises or any Tenant Alterations, in which case Landlord shall make such alterations or modifications to the Project at
Tenants expense. Except as provided in the immediately preceding sentence, Tenant, at its sole expense, shall make any alterations or modifications to the interior or the exterior of the Premises or the Project that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA) related to Tenants particular use or occupancy of the Premises or any Tenant Alterations. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys fees, charges and disbursements and costs of suit) (collectively, Claims) arising out of or in connection with Legal Requirements related to Tenants particular use or occupancy of the Premises or any Tenant Alterations, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement related to Tenants particular use or occupancy of the Premises or any Tenant Alterations.
8. Holding Over. If, with Landlords express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as may be agreed upon by Landlord and Tenant in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenants holding over, including consequential damages; provided, however, that Tenant shall not be liable for consequential damages in connection with a hold over of 30 days or less. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.
9. Taxes. Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of any kind, existing as of the Commencement Date or thereafter enacted (collectively referred to as Taxes), imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, Governmental Authority) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to (or gross receipts received by) Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal Requirements, or interpretations thereof, promulgated by any Governmental Authority, or (v) imposed as a license or other fee, charge, tax, or assessment on Landlords business or occupation of leasing space in the Project. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes. Notwithstanding anything to the contrary contained herein, Landlord shall only charge Tenant for assessments as if those assessments were paid by Landlord over the longest possible term which Landlord is permitted to pay for the applicable assessments without additional charge other than interest, if any, provided under the terms of the underlying assessments. Taxes shall not include any net income taxes, franchise taxes, capital levy taxes, transfer taxes. excess profits taxes, estate taxes, succession taxes or inheritance taxes imposed on Landlord except to the extent such net income taxes are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall
require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenants personal property or trade fixtures are levied against Landlord or Landlords property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes. Landlords determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord immediately upon demand.
10. Parking. Subject to Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right at no charge during the Base Term, in common with other tenants of the Project pro rata in accordance with the rentable area of the Premises and the rentable areas of the Project occupied by such other tenants, to park in those areas designated for non-reserved parking, subject in each case to Landlords rules and regulations at no additional cost during the Term. Landlord may allocate parking spaces among Tenant and other tenants in the Project pro rata as described above if Landlord determines that such parking facilities are becoming crowded. As of the date of this Lease, Tenants pro rata share of parking is equal to 2.5 parking spaces per 1,000 rentable square feet of the Premises. Two (2) of the parking spaces which Tenant is entitled to use pursuant to the first sentence of this Section 10 shall be marked as being reserved for Tenant in a manner consistent with Landlords program at the Project with respect to the reservation of parking spaces. Landlord shall not be responsible for enforcing Tenants parking rights against any third parties, including other tenants of the Project or for enforcing any reservation of parking spaces.
11. Utilities, Services. Landlord shall provide, subject to the terms of this Section 11, water, electricity, heat, light, power, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), and, with respect to the Common Areas only, refuse and trash collection and janitorial services (collectively, Utilities). Landlord shall pay, as Operating Expenses or subject to Tenants reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon. Landlord may cause, at Landlords expense (unless such separate metering is reasonably determined by Landlord to be needed as a result of Tenants use of more than its pro rata share of Utilities), any Utilities to be separately metered or charged directly to Tenant by the provider. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlords willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use. Tenant shall be responsible for obtaining and paying for its own janitorial services for the Premises. HVAC shall be available to the laboratory portions of the Premises 24 hours a day, 7 days per week, except in the case of emergencies, as the result of Legal Requirements, the performance by Landlord of any installation, maintenance or repairs, or any other temporary interruptions, and otherwise subject to the terms of this Lease.
Landlords sole obligation for either providing emergency generators or providing emergency back-up power to Tenant shall be: (i) to provide emergency generators with not less than the capacity of the emergency generators located in the Building as of the date hereof, and (ii) to contract with a third party to maintain the emergency generators as per the manufacturers standard maintenance guidelines. Landlord shall have no obligation to provide Tenant with operational emergency generators or back-up power or to supervise, oversee or confirm that the third party maintaining the emergency generators is maintaining the generators as per the manufacturers standard guidelines or otherwise. During any period of replacement, repair or maintenance of the emergency generators when the emergency generators are not operational, including any delays thereto due to the inability to obtain parts or
replacement equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of back-up power. Tenant expressly acknowledges and agrees that Landlord does not guaranty that such emergency generators will be operational at all times or that emergency power will be available to the Premises when needed. Notwithstanding anything to the contrary contained herein, Landlord shall, at least once per calendar quarter as part of the maintenance of the Building, run the emergency generator for a period reasonably determined by Landlord for the purpose of determining whether it operates when started.
12. Alterations and Tenants Property. Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant (other than the initial Tenant Improvements (as defined in the Work Letter) which shall be governed by the Work Letter), including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other than by ordinary plugs or jacks) to Building Systems (as defined in Section 13) (Alterations) shall be subject to Landlords prior written consent, which may be given or withheld in Landlords sole discretion if any such Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld. Tenant may construct nonstructural Alterations in the Premises without Landlords prior approval if the aggregate cost of all such work in any 12 month period does not exceed $15,000 (a Notice-Only Alteration), provided Tenant notifies Landlord in writing of such intended Notice-Only Alteration, and such notice shall be accompanied by plans, specifications, work contracts and such other information concerning the nature and cost of the Notice-Only Alteration as may be reasonably requested by Landlord, which notice and accompanying materials shall be delivered to Landlord not less than 15 business days in advance of any proposed construction. If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlords reasonable discretion. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlords right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to 3% of all charges incurred by Tenant or its contractors or agents in connection with any Alteration to cover Landlords overhead and expenses for plan review, coordination, scheduling and supervision. Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.
Tenant shall furnish security or make other arrangements reasonably satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) as built plans for any such Alteration.
Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof. Notwithstanding the foregoing,
Landlord may, at the time its approval of any such Installation is requested, or at the time it receives notice of a Notice-Only Alteration, notify Tenant that Landlord requires that Tenant remove such Installation upon the expiration or earlier termination of the Term, in which event Tenant shall remove such Installation in accordance with the immediately succeeding sentence. Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenants Property (as hereinafter defined), and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping off all such connections behind the walls of the Premises and repairing any holes. During any restoration period beyond the expiration or earlier termination of the Term, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. If Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenants Property to waive any lien Landlord may have against any of Tenants Property, and Landlord consents to such waiver, then Landlord shall be entitled to be paid as administrative rent a fee of $1,000 per occurrence for its time and effort in preparing and negotiating such a waiver of lien.
Tenant shall not be required to remove the Tenant Improvements at the expiration or earlier termination of the Term nor shall Tenant have the right to remove any of the Tenant Improvements at any time.
For purposes of this Lease, (x) Removable Installations means any items listed on Exhibit F attached hereto and any items agreed by Landlord in writing to be included on Exhibit F in the future, (y) Tenants Property means Removable Installations and, other than Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z) Installations means all property of any kind paid for with the TI Fund, all Alterations, all fixtures, and all partitions, hardware, built-in machinery, built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an integral part of the Premises, including, without limitation, fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.
13. Landlords Repairs. Landlord, as an Operating Expense (except to the extent the cost thereof is excluded from Operating Expenses pursuant to Section 5 hereof), shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (Building Systems), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenants agents, servants, employees, invitees and contractors (collectively, Tenant Parties) excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenants sole cost and expense. Landlord reserves the right to temporarily stop Building Systems services when necessary (i) by reason of accident or emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided, however, that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 48 hours advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair. Landlord shall use reasonable efforts to minimize interference with Tenants operations in the Premises during such planned stoppages of Building Systems. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenants written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlords expense and agrees that the parties respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18.
14. Tenants Repairs. Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls. Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 10 days of Landlords notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency (i.e., a circumstance which poses an imminent threat of harm to persons or substantial property damage), Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant. Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.
15. Mechanics Liens. Tenant shall discharge, by bond or otherwise, any mechanics lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 15 days after the filing thereof, at Tenants sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenants business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.
16. Indemnification. Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by the willful misconduct or negligence of Landlord. Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further waives any and all Claims for injury to Tenants business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records). Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.
17. Insurance. Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project. Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than $2,000,000 for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurers cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenants use of the Premises.
Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenants expense; workers compensation insurance with no less than the minimum limits required by law; employers liability insurance with such limits as required by law; and commercial general liability insurance, with a minimum limit of not less than $2,000,000 per occurrence for bodily injury and property damage with respect to the Premises. The commercial general liability insurance policy shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers, agents, and contractors (collectively, Landlord Parties), as additional insureds; insure on an occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class IX in Bests Insurance Guide; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenants policies). Tenant shall (i) provide Landlord with 30 days advance written notice of cancellation of such commercial general liability policy, and (ii) require Tenants insurer to endeavor to provide 10 days advance written notice of cancellation of such commercial general liability policy. Certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance. Tenants policy may be a blanket policy with an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant shall, at least 5 days prior to the expiration of such policies, furnish Landlord with renewal certificates.
In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.
The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors (Related Parties), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the others insurer.
Landlord may require insurance policy limits to be raised to conform with requirements of Landlords lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project; provided, however, that the increased amount of coverage is consistent with coverage amounts then being required by institutional owners of similar projects with tenants occupying similar size premises in the geographical area in which the Project is located.
18. Restoration. If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other casualty, Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the Restoration Period). If the Restoration Period is estimated to exceed 6 months (the Maximum Restoration Period), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction; provided, however, that notwithstanding Landlords election to restore, Tenant may elect to terminate this Lease by written notice to Landlord delivered within 10 business days of receipt of a notice from Landlord estimating a Restoration Period for the Premises longer than the Maximum Restoration Period. Unless either Landlord or Tenant so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant, subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30) in, on or about the Premises (collectively referred to herein as Hazardous Materials Clearances); provided, however, that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, or Tenant may by written notice to Landlord delivered within 10 business days of the expiration of the Maximum Restoration Period or, if longer, the Restoration Period, elect to terminate this Lease, in which event Landlord and Tenant shall be relieved of their respective obligations hereunder to make repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.
Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section 34) events or to obtain Hazardous Material Clearances, all repairs or restoration not required to be done by Landlord within the Premises and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either Landlord or Tenant may terminate this Lease upon written notice to the other if the Premises are damaged during the last year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage; provided, however, that such notice is delivered within 10 business days after the date that Landlord provides Tenant with written notice of the estimated Restoration Period. Landlord shall also have the right to terminate this Lease if insurance proceeds are not available for such restoration. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable for the temporary conduct of Tenants business. In the event that no Hazardous Material Clearances are required to be obtained by Tenant with respect to the Premises, rent abatement shall commence on the date of discovery of the damage or destruction. Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 18, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.
The provisions of this Lease, including this Section 18, 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, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.
19. Condemnation. If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof (a Taking or Taken), and the Taking would in Landlords reasonable judgment, either prevent or materially interfere with Tenants use of the Premises or materially interfere with or impair Landlords ownership or operation of the Project, then upon written notice by Landlord this Lease shall terminate and Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenants Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenants interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlords award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenants trade fixtures, if a separate award for such items is made to Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.
20. Events of Default. Each of the following events shall be a default (Default) by Tenant under this Lease:
(a) Payment Defaults. Tenant shall fail to pay any installment of Rent or any other payment hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 3 days of any such notice not more than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law.
(b) Insurance. Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 5 days before the expiration of the current coverage.
(c) Abandonment. Tenant shall abandon the Premises. Tenant shall not be deemed to have abandoned the Premises if (i) Tenant provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, Tenant completes Tenants obligations with respect to the Surrender Plan in compliance with Section 28, (ii) Tenant has made reasonable arrangements with Landlord for the security of the Premises for the balance of the Term, and (iii) Tenant continues during the balance of the Term to satisfy all of its obligations under the Lease as they come due.
(d) Improper Transfer. Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenants interest in this Lease or the Premises except as expressly permitted herein, or Tenants interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.
(e) Liens. Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 15 days after any such lien is filed against the Premises.
(f) Insolvency Events. Tenant or any guarantor or surety of Tenants obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a Proceeding for Relief); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or
entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).
(g) Estoppel Certificate or Subordination Agreement. Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 business days after a second notice requesting such document.
(h) Other Defaults. Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20, and, except as otherwise expressly provided herein, such failure shall continue for a period of 30 days after written notice thereof from Landlord to Tenant.
Any notice given under Section 20(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenants default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 30 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 30 day period and thereafter diligently prosecutes the same to completion; provided, however, that such cure shall be completed no later than 60 days from the date of Landlords notice.
21. Landlords Remedies.
(a) Payment By Landlord; Interest. Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the Default Rate), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenants Default hereunder.
(b) Late Payment Rent. Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum equal to 6% of the overdue Rent as a late charge. Notwithstanding the foregoing, before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will waive the right if Tenant pays such delinquency within 5 days thereafter. The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.
(c) Remedies. Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.
(i) Terminate this Lease, or at Landlords option, Tenants right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;
(ii) Upon any termination of this Lease, whether pursuant to the foregoing Section 21(c)(i) or otherwise, Landlord may recover from Tenant the following:
(A) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus
(B) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(C) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(D) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenants failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including, but not limited to, brokerage commissions and advertising expenses incurred, reasonable expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and
(E) At Landlords election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.
The term rent as used in this Section 21 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 21(c)(ii)(A) and (B), above, the worth at the time of award shall be computed by allowing interest at the Default Rate. As used in Section 21(c)(ii)(C) above, the worth at the time of award 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%.
(iii) Landlord may continue this Lease in effect after Tenants Default and recover rent as it becomes due (Landlord and Tenant hereby agreeing that Tenant has the right to sublet or assign hereunder, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.
(iv) Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlords sole discretion, succeed to Tenants interest in such subleases, licenses, concessions or arrangements. Upon Landlords election to succeed to Tenants interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.
(v) Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 30(d) hereof, at Tenants expense.
(d) Effect of Exercise. Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only
by the express written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlords right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlords intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine. Landlord shall not be liable for, nor shall Tenants obligations hereunder be diminished because of, Landlords failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenants Default.
22. Assignment and Subletting.
(a) General Prohibition. Without Landlords prior written consent subject to and on the conditions described in Section 22(b) below, Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 49.9% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22. Notwithstanding the foregoing, Tenant shall have the right to obtain financing from institutional and/or individual investors (including venture capital funding and corporate partners) or undergo a public offering which results in a change in control of Tenant without such change of control constituting an assignment under this Section 22 requiring Landlord consent, provided that (i) Tenant notifies Landlord in writing of the financing at least 5 business days prior to the closing of the financing, and (ii) provided that in no event shall such financing result in a change in use of the Premises from the use contemplated by Tenant at the commencement of the Term.
(b) Permitted Transfers. If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 15 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the Assignment Date), Tenant shall give Landlord a notice (the Assignment Notice) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent, (ii) refuse such consent, in its reasonable discretion, or (iii) terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an Assignment Termination). Among other reasons, it shall be reasonable for Landlord to withhold its consent in any of these instances: (1) the proposed assignee or subtenant is a governmental agency; (2) in Landlords
reasonable judgment, the use of the Premises by the proposed assignee or subtenant would entail any alterations that would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord; (3) in Landlords reasonable judgment, the proposed assignee or subtenant is engaged in areas of scientific research or other business concerns that are controversial such that they may (i) attract or cause negative publicity for or about the Building or the Project, (ii) negatively affect the reputation of the Building, the Project or Landlord, (iii) attract protestors to the Building or the Project, or (iv) lessen the attractiveness of the Building or the Project to any tenants or prospective tenants, purchasers or lenders; (4) in Landlords reasonable judgment, the proposed assignee or subtenant lacks the creditworthiness to support the financial obligations it will incur under the proposed assignment or sublease; (5) in Landlords reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is inconsistent with the desired tenant-mix or the quality of other tenancies in the Project or is inconsistent with the type and quality of the nature of the Building; (6) Landlord has received from any prior landlord to the proposed assignee or subtenant a negative report concerning such prior landlords experience with the proposed assignee or subtenant; (7) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or subtenant; (8) the use of the Premises by the proposed assignee or subtenant will violate any applicable Legal Requirement; (9) the proposed assignee or subtenant is an entity with whom Landlord is negotiating to lease space in the Project; or (10) the assignment or sublease is prohibited by Landlords lender. If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlords notice electing to exercise the Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlords consent to the proposed assignment, sublease or other transfer. Tenant shall pay to Landlord a fee equal to One Thousand Five Hundred Dollars ($1,500) in connection with its consideration of any Assignment Notice and/or its preparation or review of any consent documents. Notwithstanding the foregoing, Landlords consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant (a Control Permitted Assignment) shall not be required, provided that Landlord shall have the right to approve the form of any such sublease or assignment (which approval shall not be unreasonably withheld or delayed). In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord (unless Tenant is prohibited from providing such notice by confidentiality or Legal Requirements in which case Tenant shall notify Landlord promptly thereafter) but without obtaining Landlords prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a legitimate business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles (GAAP)) of the assignee is not less than the net worth (as determined in accordance with GAAP) of Tenant as of the date of Tenants most current quarterly or annual financial statements, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (a Corporate Permitted Assignment). Control Permitted Assignments and Corporate Permitted Assignments are hereinafter referred to as Permitted Assignments.
(c) Additional Conditions. As a condition to any such assignment or subletting, whether or not Landlords consent is required, Landlord may require:
(i) that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and
(ii) A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation: permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlords sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.
(d) No Release of Tenant, Sharing of Excess Rents. Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenants obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenants other obligations under this Lease. Except in connection with a Permitted Assignment, if the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the sum of the rental payable under this Lease, (excluding however, any Rent payable under this Section) and actual and reasonable brokerage fees, legal costs and any design or construction fees directly related to and required pursuant to the terms of any such sublease (Excess Rent), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenants obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney -in-fact for Tenant, or a receiver for Tenant appointed on Landlords application, may collect such rent and apply it toward Tenants obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.
(e) No Waiver. The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.
(f) Prior Conduct of Proposed Transferee. Notwithstanding any other provision of this Section 22, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such partys action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.
23. Estoppel Certificate. Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further factual information with respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenants failure to deliver such statement within such time shall be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.
24. Quiet Enjoyment. So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.
25. Prorations. All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.
26. Rules and Regulations. Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto as Exhibit E. If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.
27. Subordination. This Lease and Tenants interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided, however that so long as there is no Default hereunder, Tenants right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenants quiet enjoyment of the Premises as set forth in Section 24 hereof. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenants consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term Mortgage whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the Holder of a Mortgage shall be deemed to include the beneficiary under a deed of trust. As of the date of this Lease, there is no existing Mortgage encumbering the Project.
28. Surrender. Upon the expiration of the Term or earlier termination of Tenants right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous
Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, Tenant HazMat Operations), and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 3 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the Surrender Plan). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and reasonable approval of Landlords environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenants expense as set forth below, to cause Landlords environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlords environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $5,000. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlords environmental consultant with respect to the surrender of the Premises to third parties.
If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate (as confirmed by Landlords environmental consultant) to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28.
Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlords election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenants Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenants expense, and Tenant waives all claims against Landlord for any damages resulting from Landlords retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.
29. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
30. Environmental Requirements.
(a) Prohibition/Compliance/Indemnity. Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlords employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys, consultants and experts fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, Environmental Claims) which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Building, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Building, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Building, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlords approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises, the Building or the Project. Notwithstanding anything to the contrary contained in Section 28 or this Section 30, Tenant shall not be responsible for, and the indemnification and hold harmless obligation set forth in this paragraph shall not apply to (i) contamination in the Premises which Tenant can prove to Landlords reasonable satisfaction existed in the Premises immediately prior to the Commencement Date, or (ii) the presence of any Hazardous Materials in the Premises which Tenant can prove to Landlords reasonable satisfaction migrated from outside of the Premises into the Premises, unless in either case, the presence of such Hazardous Materials (x) is the result of a breach by Tenant of any of its obligations under this Lease, or (y) was caused, contributed to or exacerbated by Tenant or any Tenant Party.
Landlord shall deliver to Tenant a copy of the finalized environmental exit assessment provided to Landlord by the prior tenant of the Premises within a reasonable period after such finalized environmental exit assessment becomes available to Landlord.
(b) Business. Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials
on or from the Premises (Hazardous Materials List). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year listing all Hazardous Materials which Tenant is required to disclose to any Governmental Authority (e.g., the fire department) in connection with its use or occupancy of the Premises. Tenant shall deliver to Landlord true and correct copies of the following documents (the Haz Mat Documents) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlords sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 28 cannot be accomplished in 3 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with information which could be detrimental to Tenants business should such information become possessed by Tenants competitors.
(c) Tenant Representation and Warranty. Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenants or such predecessors action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlords sole and absolute discretion.
(d) Testing. Landlord shall have the right, upon reasonable advance notice to Tenant, to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenants use. Tenant shall be required to pay the cost of such annual test of the Premises if there is violation of this Section 30 or if contamination for which Tenant is responsible under this Section 30 is identified; provided, however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant. In addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenants use of the Premises. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which Tenant is liable under this Section 30, Tenant shall pay all costs to conduct such tests. If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions for which Tenant is responsible under this Section 30 identified by such testing in accordance with all Environmental Requirements. Landlords receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant. Tenant shall have the right to have a Tenant representative present while Landlord conducts tests in the Premises pursuant to this Section 30(d).
(e) Control Areas. Tenant shall be allowed to utilize up to its pro rata share of the Hazardous Materials inventory within any control area or zone (located within the Premises), as designated by the applicable building code, for chemical use or storage. As used in the preceding sentence, Tenants pro rata share of any control areas or zones located within the Premises shall be determined based on the rentable square footage that Tenant leases within the applicable control area or zone. For purposes of example only, if a control area or zone contains 10,000 rentable square feet and 2,000 rentable square feet of a tenants premises are located within such control area or zone (while such premises as a whole contains 5,000 rentable square feet), the applicable tenants pro rata share of such control area would be 20%.
(f) Underground Tanks. If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks.
(g) Tenants Obligations. Tenants obligations under this Section 30 shall survive the expiration or earlier termination of the Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlords sole discretion, which Rent shall be prorated daily.
(h) Definitions. As used herein, the term Environmental Requirements means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term Hazardous Materials means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the operator of Tenants facility and the owner of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.
31. Tenants Remedies/Limitation of Liability. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary, so long as Landlord is diligently pursuing the cure to completion). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlords obligations hereunder.
All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term Landlord in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises and assumption of this Lease by the transferree, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owners ownership.
32. Inspection and Access. Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises (which inspections shall be performed during regular business hours unless otherwise agreed to by Tenant) and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlords representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord shall use reasonable efforts to minimize interference with Tenants operations in the Premises in connection with Landlords activities conducted pursuant to this paragraph. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenants use or occupancy of the Premises for the Permitted Use. At Landlords request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlords access rights hereunder.
33. Security. Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenants officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenants cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.
34. Force Majeure. Except for the payment of Rent, neither Tenant nor Landlord shall be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts, or other labor disputes, embargoes, quarantines, extreme weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other similar causes or events beyond the reasonable control of such party (Force Majeure).
35. Brokers. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, Broker) in connection with this transaction and that no Broker brought about this transaction, other than Avison Young and Cassidy Turley. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction. Landlord shall be responsible for all fees of Avison Young and Cassidy Turley arising out of the execution of this Lease in accordance with the terms of separate written agreement between Landlord, on the one hand, and Avison Young and Cassidy Turley, respectively, on the other hand.
36. Limitation on Landlords Liability. NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANTS PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (8) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORDS INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORDS INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORDS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORDS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANTS BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.
37. Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.
38. Signs; Exterior Appearance. Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlords sole discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens visible from the outside of the Premises other than Landlords standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlords standard lettering. The directory tablet shall be provided exclusively for the display of the name and location of tenants.
Tenant shall, at Tenants sole cost and expense, have the non-exclusive right to install a sign bearing Tenants name on the Monument Sign serving the Project (Monument Sign). Tenant acknowledges and agrees that Tenants signage on the Monument Sign including, without limitation, the location, size, color and type, shall be subject to Landlords prior written approval, which shall not be unreasonably withheld and shall be subject to and consistent with Landlords signage program at the Project and applicable Legal Requirements. Tenant shall be responsible, at Tenants sole cost and expense, for the maintenance of Tenants signage on the Monument Sign, for the removal of Tenants signage from the Monument Sign at the expiration or earlier termination of this Lease and for the repair of all damage resulting from such removal. Tenant may use a portion of the TI Allowance to pay the cost of installation of Tenants signage on the Monument Sign.
39. Community Center Amenities.
(a) Generally. Subject to the provisions of this Section 39, Landlords affiliate, ARE-SD Region No. 17, LLC, a Delaware limited liability company (Torreyana Landlord) may construct amenities at the property owned by Torreyana Landlord located at 10996 Torreyana Road, San Diego, California (Torreyana Project), which include, without limitation, shared conference facilities (Shared Conference Facilities), a fitness center and restaurant (collectively, the Amenities) for non-exclusive use by (a) Tenant, (b) other tenants of the Project, (c) Landlord, (d) the tenants of Torreyana Landlord, (e) Torreyana Landlord, (e) other affiliates of Landlord, Torreyana Landlord and Alexandria Real Estate Equities, Inc. (ARE), (f) the tenants of such other affiliates of Landlord, Torreyana Landlord and ARE, and (g) any other parties permitted by Torreyana Landlord (collectively, Users). Landlord, Torreyana Landlord, ARE, and all affiliates of Landlord, Torreyana and ARE may be referred to collectively herein as the ARE Parties. Notwithstanding anything to the contrary contained herein, Tenant acknowledges and agrees that (i) Torreyana Landlord is in the preliminary phase of design and development of the Amenities and does not currently have and may not be able to obtain the governmental approvals necessary for the development and construction of the Amenities, and (ii) Torreyana Landlords construction of the Amenities is subject to, among other things, Torreyana Landlords ability to obtain, on terms and conditions acceptable to Torreyana Landlord in its sole and absolute discretion, all of the governmental approvals to permit the design and construction of the Amenities, and the availability of materials and labor and all other conditions outside of Torreyana Landlords reasonable control. Torreyana Landlord shall have the sole right to determine all matters related to the Amenities including, without limitation, relating to the design and construction thereof. Tenant acknowledges and agrees that Landlord has not made any representations or warranties regarding the development of any of the Amenities and that Tenant is not entering into this Lease relying on the construction and completion of the Amenities or with an expectation that the Amenities will ever be constructed. Tenant acknowledges and agrees that the current plan for the Amenities Center including, without limitation, the type, configuration and locations and the existence of any of the Amenities within the Torreyana Project are not guaranteed and are subject to change by Landlord from time to time in the exercise of Landlords sole and absolute discretion; provided, however, that the Amenities provided will be of a Class A building standard and will, at a minimum, include a fitness center, eatery and conference center.
(b) License. Following the delivery of written notice from Landlord to Tenant that the Amenities are available for use by Tenant (Amenity Availability Notice), if at all, and so long as the Torreyana Project and the Project continue to be owned by affiliates of ARE, Tenant shall have the non -exclusive right to the use of the available Amenities for up to 35 employees of Tenant (which employees are employed at the Premises) in common with other Users pursuant to the terms of this Section 39. If Landlord delivers an Amenity Availability Notice to Tenant, Tenant shall, upon the date (Amenities Commencement Date) set forth in the Amenity Availability Notice (provided that Tenant is actually permitted to commence using the Amenities as of such date), commence paying Landlord a fixed fee during the Base Term equal to $0.18 per rentable square foot of the Premises per month (Amenities Fee), which Amenities Fee shall by payable on the first day of each month during the Term whether or not Tenant elects to use any or all of the Amenities. The Amenities Fee shall be increased annually on each anniversary of the Commencement Date by the Rent Adjustment Percentage.
(c) Shared Conference Facilities. Use by Tenant of the Shared Conference Facilities and restaurant at the Torreyana Project shall be in common with other Users with scheduling procedures reasonably determined by Torreyana Landlord. Torreyana Landlord reserves the right to exercise its reasonable discretion in the event of conflicting scheduling requests among Users.
Any vendors engaged by Tenant in connection with Tenants use of the Shared Conference Facilities shall be professional licensed vendors. Torreyana Landlord shall have the right to reasonably approve any vendors utilized by Tenant in connection with Tenants use of the Shared Conference
Facilities. Prior to any entry by any such vendor onto the Torreyana Project, Tenant shall deliver to Landlord a copy of the contract between Tenant and such vendor and certificates of insurance from such vendor evidencing industry standard commercial general liability, automotive liability, and workers compensation insurance. Tenant shall cause all such vendors utilized by Tenant to provide a certificate of insurance naming Landlord, ARE, and Torreyana Landlord as additional insureds under the vendors liability policies. Notwithstanding the foregoing, Tenant shall be required to use the food service operator used by Torreyana Landlord at the Torreyana Project for any food service or catered events held by Tenant in the Shared Conference Facilities.
Tenant shall, at Tenants sole cost and expense, (i) be responsible for the set-up of the Shared Conference Facilities in connection with Tenants use (including, without limitation ensuring that Tenant has a sufficient number of chairs and tables and the appropriate equipment), and (ii) surrender the Shared Conference Facilities after each time that Tenant uses the Shared Conference Facilities free of Tenants personal property, in substantially the same set up and same condition as received, subject to casualty, and free of any debris and trash. If Tenant fails to restore and surrender the Shared Conference Facilities as required by sub-section (ii) of the immediately preceding sentence, such failure shall constitute a Shared Facilities Default. Each time that Landlord reasonably determines that Tenant has committed a Shared Facilities Default, Tenant shall be required to pay Landlord a penalty within 5 days after notice from Landlord of such Shared Facilities Default. The penalty payable by Tenant in connection with the first Shared Facilities Default shall be $200. The penalty payable shall increase by $50 for each subsequent Shared Facilities Default (for the avoidance of doubt, the penalty shall be $250 for the second Shared Facilities Default, shall be $300 for the third Shared Facilities Default, etc.). In addition to the foregoing, Tenant shall be responsible for reimbursing Torreyana Landlord or Landlord, as applicable, for all costs expended by Torreyana Landlord or Landlord, as applicable, in repairing any damage to the Shared Conference Facilities, the Amenities, or the Torreyana Project caused by Tenant or any Tenant Related Party. The provisions of this Section 39(c) shall survive the expiration or earlier termination of this Lease.
(d) Rules and Regulations. Tenant shall be solely responsible for paying any and all food services operators and any other third party vendors providing services to Tenant at the Torreyana Project. Tenant shall use the Amenities (including, without limitation, the Shared Conference Facilities) in compliance with all applicable Legal Requirements and any reasonable rules and regulations imposed by Torreyana Landlord or Landlord from time to time (which rules shall not be enforced in a discriminatory manner) and in a manner that will not interfere with the rights of other Users. The use of Amenities other than the Shared Conference Facilities by employees of Tenant shall be in accordance with the terms and conditions of the standard licenses, indemnification and waiver agreement required by Torreyana Landlord or the operator of the Amenities to be executed by all persons wishing to use such Amenities. Neither Torreyana Landlord nor Landlord (nor, if applicable, any other affiliate of Landlord) shall have any liability or obligation for the breach of any rules or regulations by other Users with respect to the Amenities. Tenant shall not make any alterations, additions, or improvements of any kind to the Shared Conference Facilities, the Amenities or the Torreyana Project.
Tenant acknowledges and agrees that Torreyana Landlord shall have the right at any time and from time to time to reconfigure, relocate, modify or remove any of the Amenities at the Torreyana Project and/or to revise, expand or discontinue any of the services (if any) provided in connection with the Amenities.
(e) Waiver of Liability and Indemnification. Tenant warrants that it will use reasonable care to prevent damage to property and injury to persons while on the Torreyana Project. To the extent permitted by applicable law, Tenant waives any claims it or any Tenant Parties may have against any ARE Parties relating to, arising out of or in connection with the Amenities and any entry by Tenant and/or any Tenant Parties onto the Torreyana Project, and Tenant releases and exculpates all ARE Parties from any liability relating to, arising out of or in connection with the Amenities and any entry by Tenant and/or any Tenant Parties onto the Torreyana Project. Tenant hereby agrees to indemnify, defend, and hold harmless the ARE Parties from any claim of damage to property or injury to person relating to, arising out of or in connection with (i) the use of the Amenities by Tenant or any Tenant Parties, and (ii) any entry by Tenant and/or any Tenant Parties onto the Torreyana Project. The provisions of this Section 39 shall survive the expiration or earlier termination of the Lease.
(f) Insurance. As of the Amenities Commencement Date, Tenant shall cause Torreyana Landlord to be named as an additional insured under the commercial general liability policy of insurance that Tenant is required to maintain pursuant to Section 17 of this Lease.
40. Alternative Premises. If at any time during the Term of this Lease, Tenant is considering leasing additional or alternative space in the San Diego area, Tenant shall deliver written notice (Premises Notice) to Landlord, which Premises Notice shall include a description of the additional or alternative space desired by Tenant. For a period of 30 days following Tenants delivery of the Premises Notice to Landlord (Exclusive Period), Tenant agrees that Landlord shall have the exclusive right, if it so elects and without any obligation to do so, to offer Tenant additional or alternative premises which satisfy in part or in its entirety the premises being sought by Tenant (Alternative Premises) on market terms at the Project or, if Landlord so elects, at another property in the San Diego area owned or controlled by an entity controlled by, under common control with, or controlling Landlord including, without limitation, any of the constituent members of Landlord or Alexandria Real Estate Equities, Inc. (any such entity, an Affiliate). Landlord and/or any Affiliate, as the case may be, shall have the right, if it so elects and without any obligation to do so, to acquire a new project or redevelop any existing project it then owns to provide the Alternative Premises. Tenant shall consider in good faith any Alternative Premises offered to Tenant by Landlord (or its Affiliate) during the Exclusive Period. If Landlord (or its Affiliate) and Tenant identify an Alternative Premises acceptable to Tenant, Landlord (or its Affiliate) and Tenant shall use good faith efforts to negotiate and enter into a new lease for such Alternative Premises. If Landlord (or its Affiliate) and Tenant are negotiating a lease as of the expiration of the Exclusive Period, the Exclusive Period shall be extended through the earlier to occur of (i) the date that Landlord (or its Affiliate) and Tenant enter into a new lease, or (ii) the date that negotiations between Landlord (or its Affiliate) and Tenant terminate. Such new lease shall, if entered into, otherwise be upon terms and conditions acceptable to Landlord or Affiliate, as the case may be, and Tenant in their respective good faith sole discretion. The provisions of this Section 40 shall only apply so long as ARE-10933 North Torrey Pines, LLC, or an Affiliate is the owner of the Project.
41. Miscellaneous.
(a) Notices. All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.
(b) Joint and Several Liability. If and when included within the term Tenant, as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.
(c) Financial Information. Upon Landlords request, Tenant shall furnish Landlord with true and complete copies of (i) Tenants most recent audited annual financial statements within 180 days of the end of each of Tenants fiscal years during the Term or, if the audited annual financial statements have not been made available to Tenant within such 180 day period, then at such time that such annual audited financial statements become available to Tenant, (ii) Tenants most recent unaudited quarterly financial statements within 60 days of the end of each of Tenants first three fiscal quarters of each of Tenants fiscal years during the Term, (iii) at Landlords request from time to time, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders. Notwithstanding the foregoing, in no event shall Tenant be required to provide any financial information to Landlord which Tenant does not otherwise prepare (or cause to be prepared) for its own purposes.
(d) Recordation. Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease. The foregoing is not intended to prohibit Tenant from filing this Lease to the extent that Tenant is required to do so pursuant to applicable SEC requirements.
(e) Interpretation. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.
(f) Not Binding Until Executed. The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.
(g) Limitations on Interest. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlords and Tenants express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.
(h) Choice of Law. Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.
(i) Time. Time is of the essence as to the performance of Tenants obligations under this Lease.
(j) OFAC. Tenant is currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the OFAC Rules), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.
(k) Incorporation by Reference. All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.
(l) Entire Agreement. This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.
(m) No Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlords right to recover the balance of such Rent or to pursue any other remedy provided in this Lease.
(n) Hazardous Activities. Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenants routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlords reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenants Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.
(o) Redevelopment of Project. Tenant acknowledges that Landlord, in its sole discretion, may from time to time expand, renovate and/or reconfigure the Project as the same may exist from time to time and, in connection therewith or in addition thereto, as the case may be, from time to time without limitation: (a) change the shape, size, location, number and/or extent of any improvements, buildings, structures, lobbies, hallways, entrances, exits, parking and/or parking areas relative to any portion of the Project; (b) modify, eliminate and/or add any buildings, improvements, and parking structure(s) either above or below grade, to the Project, the Common Areas and/or any other portion of the Project and/or make any other changes thereto affecting the same; and (c) make any other changes, additions and/or deletions in any way affecting the Project and/or any portion thereof as Landlord may elect from time to time, including without limitation, additions to and/or deletions from the land comprising the Project, the Common Areas and/or any other portion of the Project. Landlord shall use reasonable efforts to minimize interference with Tenants operations in the Premises during any expansion, renovation and/or reconfiguration performed by Landlord pursuant to this paragraph. Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no right to seek damages (including abatement of Rent) or to cancel or terminate this Lease because of any proposed changes, expansion, renovation or reconfiguration of the Project nor shall Tenant have the right to restrict, inhibit or prohibit any such changes, expansion, renovation or reconfiguration; provided, however, Landlord shall not change the size, dimensions, location or Tenants Permitted Use of the Premises.
(p) Discontinued Use. If, at any time following the Rent Commencement Date, Tenant (or an assignee or subtenant of Tenant pursuant to Section 22) does not continuously operate its business in the Premises for a period of 180 consecutive days, Landlord may, but is not obligated to, elect to terminate this Lease upon 30 days written notice to Tenant, whereupon this Lease shall terminate 30 days after Landlords delivery of such written notice (Termination Date), and Tenant shall vacate the Premises and deliver possession thereof to Landlord in the condition required by the terms of this Lease on or before the Termination Date and Tenant shall have no further obligations under this Lease except for those accruing prior to the Termination Date and those which, pursuant to the terms of the Lease, survive the expiration or early termination of the Lease.
[Signatures on next page]
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.
TENANT: | ||
AVIDITY NANOMEDICINES LLC, | ||
a Delaware limited liability company | ||
By: | /s/ Kent Hawryluk | |
Its: | Chief Business Officer | |
LANDLORD: |
ARE-10933 NORTH TORREY PINES, LLC, | ||
a Delaware limited liability company |
By: | ALEXANDRIA REAL ESTATE EQUITIES, INC., | |
a Maryland corporation, | ||
managing member |
By: | /s/ Gary Dean | |||
Its: | Gary Dean | |||
Vice President | ||||
RE Legal Affairs |
EXHIBIT A TO LEASE
DESCRIPTION OF PREMISES
EXHIBIT B TO LEASE
DESCRIPTION OF PROJECT
EXHIBIT C TO LEASE
WORK LETTER
THIS WORK L TTER (this Work Letter) is incorporated into that certain Lease Agreement (the Lease) dated as of March 31, 2014 by and between ARE-10933 NORTH TORREY PINES, LLC, a Delaware limited liability company (Landlord), and AVIDITY NANOMEDICINES LLC, a Delaware limited liability company (Tenant). Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.
1. General Requirements.
(a) Tenants Authorized Representative. Tenant designates Heidi Henson and Angelica Garcia (either such individual acting alone, Tenants Representative) as the only persons authorized to act for Tenant pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (Communication) from or on behalf of Tenant in connection with this Work Letter unless such Communication is in writing from Tenants Representative. Tenant may change either Tenants Representative at any time upon not less than 5 business days advance written notice to Landlord. Neither Tenant nor Tenants Representative shall be authorized to direct Landlords contractors in the performance of Landlords Work (as hereinafter defined).
(b) Landlords Authorized Representative. Landlord designates Jenny Gardner and Steve Pomerenke (either such individual acting alone, Landlords Representative) as the only persons authorized to act for Landlord pursuant to this Work Letter. Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or other Communication from or on behalf of Landlord in connection with this Work Letter unless such Communication is in writing from Landlords Representative. Landlord may change either Landlords Representative at any time upon not less than 5 business days advance written notice to Tenant. Landlords Representative shall be the sole persons authorized to direct Landlords contractors in the performance of Landlords Work.
(c) Architects, Consultants and Contractors. Landlord and Tenant hereby acknowledge and agree that: (i) the general contractor and any subcontractors for the Tenant Improvements shall be selected by Landlord, subject to Tenants approval, which approval shall not be unreasonably withheld, conditioned or delayed, and (ii) Dowler Gruman shall be the architect (the TI Architect) for the Tenant Improvements.
2. Tenant Improvements.
(a) Definition of Tenant Improvements. As used herein, Tenant Improvements shall mean all improvements to the Project of a fixed and permanent nature as shown on the TI Construction Drawings, as defined in Section 2(c) below. Other than Landlords Work (as defined in Section 3(a) below, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenants use and occupancy.
(b) Tenants Space Plans. Tenant shall deliver to Landlord and the TI Architect schematic drawings and outline specifications (the TI Design Drawings) detailing Tenants requirements for the Tenant Improvements within 5 business days of the date hereof. Not more than 2 days thereafter, Landlord shall deliver to Tenant the written objections, questions or comments of Landlord and the TI Architect with regard to the TI Design Drawings. Tenant shall cause the TI Design Drawings to be revised to address such written comments and shall resubmit said drawings to Landlord for approval within 2 days thereafter. Such process shall continue until Landlord has approved the TI Design Drawings.
(c) Working Drawings. Landlord shall cause the TI Architect to prepare and deliver to Tenant for review and comment construction plans, specifications and drawings for the Tenant Improvements (TI Construction Drawings), which TI Construction Drawings shall be prepared
substantially in accordance with the TI Design Drawings. Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenants requirements for the Tenant Improvements. Tenant shall deliver its written comments on the TI Construction Drawings to Landlord not later than 10 business days after Tenants receipt of the same; provided, however, that Tenant may not disapprove any matter that is consistent with the TI Design Drawings without submitting a Change Request. Landlord and the TI Architect shall consider all such comments in good faith and shall, within 10 business days after receipt, notify Tenant how Landlord proposes to respond to such comments, but Tenants review rights pursuant to the foregoing sentence shall not delay the design or construction schedule for the Tenant Improvements. Any disputes in connection with such comments shall be resolved in accordance with Section 2(d) hereof. Provided that the design reflected in the TI Construction Drawings is consistent with the TI Design Drawings, Tenant shall approve the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request. Once approved by Tenant, subject to the provisions of Section 4 below, Landlord shall not materially modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section 3(b) below).
(d) Approval and Completion. It is hereby acknowledged by Landlord and Tenant that the TI Construction Drawings must be completed and approved not later than April 30, 2014, in order for the Landlords Work to be Substantially Complete by the Target Commencement Date (as defined in the Lease). Upon any dispute regarding the design of the Tenant Improvements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlords and Tenants positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable out of the TI Fund (as defined in Section 5(d) below), and (iii) Tenants decision will not affect the base Building, structural components of the Building or any Building systems. Any changes to the TI Construction Drawings following Landlords and Tenants approval of same requested by Tenant shall be processed as provided in Section 4 hereof.
3. Performance of Landlords Work.
(a) Definition of Landlords Work. As used herein, the term Landlords Work shall mean the work of constructing the Tenant Improvements and (i) cleaning of the carpets and flooring in the Premises, (ii) applying touch-up paint to the interior walls of the Premises, as needed, as reasonably determined by Landlord, (iii) repairing or replacing broken or discolored ceiling tiles in the Premises, as reasonably determined by Landlord, and (iv) repairing or replacing broken light fixtures located in the Premises, as reasonably determined by Landlord. The cost of items (i) through (iv) above shall be paid for by Landlord and not be payable from the TI Allowance.
(b) Commencement and Permitting. Landlord shall commence construction of the Tenant Improvements upon obtaining a building permit (the TI Permit) authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Tenant. The cost of obtaining the TI Permit shall be payable from the TI Fund. Tenant shall assist Landlord in obtaining the TI Permit. If any Governmental Authority having jurisdiction over the construction of Landlords Work or any portion thereof shall impose terms or conditions upon the construction thereof that: (i) are inconsistent with Landlords obligations hereunder, (ii) increase the cost of constructing Landlords Work, or (iii) will materially delay the construction of Landlords Work, Landlord and Tenant shall reasonably and in good faith seek means by which to mitigate or eliminate any such adverse terms and conditions.
(c) Completion of Landlords Work. On or before the Target Commencement Date (subject to Tenant Delays and Force Majeure delays), Landlord shall substantially complete or cause to be substantially completed Landlords Work in a good and workmanlike manner, in accordance with the TI Permit subject, in each case, to Minor Variations and normal punch list items of a non-material nature that do not interfere with the use of the Premises (Substantial Completion or Substantially Complete). Upon Substantial Completion of Landlords Work, Landlord shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of
Substantial Completion in the form of the American Institute of Architects (AIA) document G704. For purposes of this Work Letter, Minor Variations shall mean any modifications reasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comply with any request by Tenant for modifications to Landlords Work; (iii) to comport with good design, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments for field deviations or conditions encountered during the construction of Landlords Work.
(d) Selection of Materials. Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Landlord and Tenant, the option will be selected at Landlords sole and absolute discretion. As to all building materials and equipment that Landlord is obligated to supply under this Work Letter, Landlord shall select the manufacturer thereof in its reasonable discretion unless a manufacturer is specified in the approved TI Construction Drawings.
(e) Delivery of the Premises. When Landlords Work is Substantially Complete, subject to the remaining terms and provisions of this Section 3(e), Tenant shall accept the Premises. Tenants taking possession and acceptance of the Premises shall not constitute a waiver of: (i) any warranty with respect to workmanship (including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Landlords Work with applicable Legal Requirements, or (iii) any claim that Landlords Work was not completed substantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as are permitted hereunder) (collectively, a Construction Defect). Tenant shall have one year after Substantial Completion within which to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter. Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlords reasonable efforts, fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall have no further obligation with respect to such Construction Defect other than to cooperate, at no cost to Landlord, with Tenant should Tenant elect to pursue a claim against such contractor.
Tenant shall be entitled to receive the benefit of all construction warranties and manufacturers equipment warranties relating to equipment installed in the Premises. If requested by Tenant, Landlord shall attempt to obtain extended warranties from manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely out of the TI Fund. Landlord shall promptly undertake and complete, or cause to be completed, all punch list items.
(f) Commencement Date Delay. Except as otherwise provided in the Lease, Delivery of the Premises shall occur when Landlords Work has been Substantially Completed, except to the extent that completion of Landlords Work shall have been actually delayed by any one or more of the following causes (Tenant Delay):
(i) Tenants Representative was not available to give or receive any Communication or to take any other action required to be taken by Tenant hereunder;
(ii) Tenants request for Change Requests (as defined in Section 4(a) below) whether or not any such Change Requests are actually performed;
(iii) Construction of any Change Requests;
(iv) Tenants request for materials, finishes or installations requiring unusually long lead times;
(v) Tenants delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein;
(vi) Tenants delay in providing information critical to the normal progression of the Project. Tenant shall provide such information as soon as reasonably possible, but in no event longer than one week after receipt of any request for such information from Landlord;
(vii) Tenants delay in making payments to Landlord for Excess TI Costs (as defined in Section 5(d) below); or
(viii) Any other act or omission by Tenant or any Tenant Party (as defined in the Lease), or persons employed by any of such persons that continues for more than 1 day after Landlords notice thereof to Tenant.
If Delivery is delayed for any of the foregoing reasons, then Landlord shall cause the TI Architect to certify the date on which the Tenant Improvements would have been Substantially Completed but for such Tenant Delay and such certified date shall be the date of Delivery. Upon request, Landlord shall advise Tenant of any materials, finishes or installation which are required as part of any Change Request that will result in unusually long lead times.
4. Changes. Any changes requested by Tenant to the Tenant Improvements after the delivery and approval by Landlord of the Space Plan shall be requested and instituted in accordance with the provisions of this Section 4 and shall be subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned or delayed.
(a) Tenants Request For Changes. If Tenant shall request changes to the Tenant Improvements (Changes), Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a Change Request), which Change Request shall detail the nature and extent of any such Change. Such Change Request must be signed by Tenants Representative. Landlord shall, before proceeding with any Change, use commercially reasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of: (i) the time it will take, and (ii) the architectural and engineering fees and costs that will be incurred, to analyze such Change Request (which costs shall be paid from the TI Fund to the extent actually incurred, whether or not such change is implemented). Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of the Change Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), an analysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the period of time, if any, that the Change will extend the date on which Landlords Work will be Substantially Complete. Any such delay in the completion of Landlords Work caused by a Change, including any suspension of Landlords Work while any such Change is being evaluated and/or designed, shall be Tenant Delay.
(b) Implementation of Changes. If Tenant: (i) approves in writing the cost or savings and the estimated extension in the time for completion of Landlords Work, if any, and (ii) deposits with Landlord any Excess TI Costs required in connection with such Change, Landlord shall cause the approved Change to be instituted. Notwithstanding any approval or disapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architects determination of the amount of Tenant Delay in connection with such Change shall be final and binding on Landlord and Tenant.
5. Costs.
(a) Budget For Tenant Improvements. Before the commencement of construction of the Tenant Improvements, Landlord shall obtain a detailed breakdown by trade of the costs incurred or that will be incurred in connection with the design and construction of the Tenant Improvements (the Budget). The Budget shall be submitted to Tenant for its approval, which approval shall not be unreasonably withheld, conditioned or delayed. Following Landlords delivery to Tenant of the initial Budget, Tenant shall be permitted to value-engineer the Tenant Improvements for a period of 10 business days. Notwithstanding anything to the contrary contained herein, if Tenant does not approve or disapprove the Budget such 10 business day period, Tenant shall be deemed to have approved the
Budget. The Budget shall be based upon the TI Construction Drawings approved by Tenant and shall include a payment to Landlord of administrative rent (Administrative Rent) equal to 4% of the TI Costs for monitoring and inspecting the construction of the Tenant Improvements and Changes, which sum shall be payable from the TI Fund (as defined in Section 5(d). Administrative Rent shall include, without limitation, all out-of-pocket costs, expenses and fees incurred by or on behalf of Landlord arising from, out of, or in connection with monitoring the construction of the Tenant Improvements and Changes, and shall be payable out of the TI Fund. If the Budget is greater than the TI Allowance, Tenant shall deposit with Landlord the difference, in cash, prior to the commencement of construction of the Tenant Improvements or Changes, for disbursement by Landlord as described in Section 5(d).
(b) TI Allowance. Landlord shall provide to Tenant a tenant improvement allowance (the TI Allowance) of $15 per rentable square foot of the Premises, or $128,415 in the aggregate. The TI Allowance shall be disbursed in accordance with this Work Letter.
Tenant shall have no right to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the TI Allowance not required for the construction of (i) the Tenant Improvements described in the TI Construction Drawings approved pursuant to Section 2(d), (ii) any Changes pursuant to Section 4, or (iii) the installation of Tenants signage on the Monument Sign.
(c) Costs lncludable in TI Fund. The TI Fund shall be used solely for the payment of design, permits and construction costs in connection with the construction of the Tenant Improvements, including, without limitation, the cost of electrical power and other utilities used in connection with the construction of the Tenant Improvements, the cost of preparing the Space Plan and the TI Construction Drawings, all costs set forth in the Budget, including Landlords Administrative Rent, Landlords out-of-pocket expenses, costs resulting from Tenant Delays and the cost of Changes (collectively, TI Costs). Notwithstanding anything to the contrary contained herein, the TI Fund shall not be used to purchase any furniture, personal property or other non-Building system materials or equipment, including, but not limited to, Tenants voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Tenant Improvements.
(d) Excess TI Costs. Landlord shall have no obligation to bear any portion of the cost of any of the Tenant Improvements except to the extent of the TI Allowance. If at any time the remaining TI Costs under the Budget exceed the remaining unexpended TI Allowance, Tenant shall deposit with Landlord, as a condition precedent to Landlords obligation to complete the Tenant Improvements, 100% of the then current TI Cost in excess of the remaining TI Allowance (Excess TI Costs). If Tenant fails to deposit any Excess TI Costs with Landlord, Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge). For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease. The TI Allowance and Excess TI Costs are herein referred to as the TI Fund. Funds deposited by Tenant shall be the first disbursed to pay TI Costs. Notwithstanding anything to the contrary set forth in this Section 5(d), Tenant shall be fully and solely liable for TI Costs and the cost of Minor Variations in excess of the TI Allowance. If upon completion of the Tenant Improvements and the payment of all sums due in connection therewith there remains any undisbursed portion of the TI Fund, Tenant shall be entitled to such undisbursed TI Fund solely to the extent of any Excess TI Costs deposit Tenant has actually made with Landlord.
6. Tenant Access.
(a) Tenants Access Rights. Landlord hereby agrees to permit Tenant access, at Tenants sole risk and expense, to the Building (i) 14 days prior to the Commencement Date to perform any work (Tenants Work) required by Tenant other than Landlords Work, provided that such Tenants Work is coordinated with the TI Architect and the general contractor, and complies with the Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completion of Landlords Work, to inspect and observe work in process; all such access shall be during normal business hours or at such other times as are reasonably designated by Landlord. Notwithstanding the foregoing, Tenant
shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance reasonably required by Landlord in connection with such pre-commencement access (including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is in full force and effect. Any entry by Tenant shall comply with all established safety practices of Landlords contractor and Landlord until completion of Landlords Work and acceptance thereof by Tenant.
(b) No Interference. Neither Tenant nor any Tenant Party (as defined in the Lease) shall interfere with the performance of Landlords Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities, and upon any such interference, Landlord shall have the right to exclude Tenant and any Tenant Party from the Premises and the Project until Substantial Completion of Landlords Work.
(c) No Acceptance of Premises. The fact that Tenant may, with Landlords consent, enter into the Project prior to the date Landlords Work is Substantially Complete for the purpose of performing Tenants Work shall not be deemed an acceptance by Tenant of possession of the Premises, but in such event Tenant shall defend with counsel reasonably acceptable by Landlord, indemnify and hold Landlord harmless from and against any loss of or damage to Tenants property, completed work, fixtures, equipment, materials or merchandise, and from liability for death of, or injury to, any person, caused by the act or omission of Tenant or any Tenant Party.
7. Miscellaneous.
(a) Consents. Whenever consent or approval of either party is required under this Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval, unless expressly set forth herein to the contrary.
(b) Modification. No modification, waiver or amendment of this Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.
EXHIBIT D TO LEASE
ACKNOWLEDGMENT OF COMMENCEMENT DATE
This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this day of , , between ARE-10933 NORTH TORREY PINES, LLC, a Delaware limited liability company (Landlord), and AVIDITY NANOMEDICINES LLC, a Delaware limited liability company (Tenant), and is attached to and made a part of the Lease dated , (the Lease), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.
Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Commencement Date of the Base Term of the Lease is , , the Rent Commencement Date of the Base Term of the Lease is , , and the termination date of the Base Term of the Lease shall be midnight on , . In case of a conflict between the terms of the Lease and the terms of this Acknowledgment of Commencement Date, this Acknowledgment of Commencement Date shall control for all purposes.
IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.
TENANT: | ||
AVIDITY NANOMEDICINES LLC, | ||
a Delaware limited liability company |
By: |
| |
Its: |
|
LANDLORD: | ||
ARE-10933 NORTH TORREY PINES, LLC, | ||
a Delaware limited liability company |
By: | ALEXANDRIA REAL ESTATE EQUITIES, INC., | |||
a Maryland corporation, | ||||
managing member |
By: |
| |
Its: |
|
EXHIBIT E TO LEASE
Rules and Regulations
1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.
3. Except for animals assisting the disabled, no animals shall be allowed in the offices, halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenants expense.
6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project.
7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time, provided that temporary short-term overnight parking by Tenants employees while travelling for business purposes shall be permitted. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no For Sale or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other pests.
9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.
10. Tenant shall not cause any unnecessary labor by reason of Tenants carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.
11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.
12. Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.
13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.
14. No auction, public or private, will be permitted on the Premises or the Project.
15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.
16. The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.
17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlords consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.
18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.
19. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenants ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.
EXHIBIT F TO LEASE
TENANTS PERSONAL PROPERTY
None.
EXHIBIT G TO LEASE
INTENTIONALLY OMITTED
EXHIBIT H TO LEASE
LANDLORDS FURNITURE
Description |
Dimensions | Qty | ||
Reception desk (maple laminate) | 76 x 71 | 1 | ||
Cubicles/ workstations (maple laminate) | 70 x 70 | 12 | ||
Desk (maple laminate) | 72 x 108 | 4 | ||
Conference table (maple laminate) | 48 x 144 | 2 | ||
Table (maple laminate) | 24 x 48 | 9 | ||
Workstations (grey laminate) | 36 x 80 | 8 | ||
Desk (grey laminate) | 30 x 50 | 2 | ||
Desk (maple laminate) | 30 x 60 | 9 | ||
Table (white laminate) | 30 x 60 | 6 | ||
Two-door cabinet (maple laminate) | 22 x 36 | 4 |
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (the First Amendment) is made as of June 27, 2017, by and between ARE-10933 NORTH TORREY PINES, LLC, a Delaware limited liability company (Landlord), and AVIDITY BIOSCIENCES LLC, a Delaware limited liability company (Tenant), formerly known as AVIDITY NANOMEDICINES LLC, a Delaware limited liability company.
RECITALS
A. Landlord and Tenant are parties to that certain Lease Agreement dated as of March 31, 2014 (the Lease), wherein Landlord leases to Tenant certain premises containing approximately 8,561 rentable square feet (the Premises) located at 10975 North Torrey Pines, La Jolla, California, as more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.
B. The term of the Lease is scheduled to expire on November 30, 2017.
C. Landlord and Tenant desire to amend the Lease to, among other things, extend the term of the Lease through December 31, 2021 (the First Amendment Expiration Date).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. | Term. The expiration date of the term of the Lease is hereby extended through the First Amendment Expiration Date. Tenants occupancy of the Premises through the First Amendment Expiration Date shall be on an as-is basis and, except as expressly provided in Section 3 below, Landlord shall have no obligation to provide any tenant improvement allowance or to make any alterations to the Premises. |
2. | Base Rent. Tenant shall continue to pay Base Rent as provided in the Lease through November 30, 2017. Commencing on December 1, 2017, Tenant shall pay Base Rent for the Premises equal to $3.60 per rentable square foot of the Premises per month. On December 1, 2018, and each subsequent December 1st during the Term through the First Amendment Expiration Date (each, a First Amendment Adjustment Date), Base Rent shall be increased by multiplying the Base Rent payable immediately before such First Amendment Adjustment Date by 3% and adding the resulting amount to the Base Rent payable immediately before such First Amendment Adjustment Date. |
Notwithstanding anything to the contrary contained herein, so long as Tenant is not then in Default under the Lease, the Base Rent payable under the Lease for the period commencing on December 1, 2017, through February 28, 2018 (the Abatement Period), shall be abated. Tenant shall resume paying full Base Rent under the Lease on March 1, 2018. Tenant shall continue to pay Operating Expenses (including administration rent each month equal to the amount of the administration rent that Tenant would have been required to pay in the absence of there being an Abatement Period) and all other amounts due under the Lease during the Abatement Period.
3. | Tenant Improvements. Commencing in December 2017, Landlord and its contractors and agents shall have the right, subject to the Schedule (as defined in the Work Letter) to enter the Premises to complete Landlords Work (as defined in the Work Letter) pursuant to the Work Letter attached hereto as Exhibit A (Work Letter) and Tenant shall reasonably cooperate with Landlord in |
connection with the same. Landlord shall use reasonable efforts to complete Landlords Work in accordance with the Schedule. Tenant acknowledges that Landlords completion of Landlords Work may adversely affect Tenants use and occupancy of the Premises. Landlord shall endeavor to minimize interference with Tenants operations in the Premises during the performance of Landlords Work. At Tenants request, Landlord shall perform Landlords Work outside of regular business hours, provided that Tenant shall be responsible as part of Excess TI Costs (as defined in the Work Letter) for any additional or overtime costs incurred by Landlord in connection with performing Landlords Work outside of regular business hours. Tenant waives all claims against Landlord in connection with the construction of Landlords Work including, without limitation, claims for rent abatement. Upon the expiration or earlier termination of the Lease, Tenant will not be required to restore or remove any of the Landlords Work nor shall Tenant have the right to remove any of the Landlords Work during the Term. |
4. | Security Deposit. Landlord and Tenant acknowledge that as of the date of this First Amendment, Landlord holds a Security Deposit as security for Tenants performance under the Lease in the amount of $27,823.25, which Security Deposit is in the form of a Letter of Credit. Tenant has requested that Tenant be allowed to replace the Letter of Credit with a cash Security Deposit and Landlord has agreed to such request. As a result, concurrently with Tenants delivery to Landlord of an original of this First Amendment, Tenant shall deliver to Landlord a cash Security Deposit in the amount of $27,823.25. Within 15 days after receipt of Tenants cash Security Deposit pursuant to the immediately preceding sentence, Landlord shall return the Letter of Credit to Tenant and shall reasonably cooperate, at no cost to Landlord, with Tenants efforts to cause the issuer of the Letter of Credit to cancel or terminate the Letter of Credit. Following the delivery of the cash Security Deposit to Landlord, such cash Security Deposit shall constitute the Security Deposit under Section 6 of the original Lease. |
5. | Alternative Premises. As of the date of this First Amendment, Section 40 of the original Lease is hereby deleted in its entirety and is of no further force or effect. |
6. | Tenants Personal Property. As of the date of this First Amendment, Exhibit F of the original Lease is hereby deleted in its entirety and replaced with Exhibit F attached to this First Amendment. |
7. | California Accessibility Disclosure. For purposes of Section 1938(a) of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Project has not undergone inspection by a Certified Access Specialist (CASp). In addition, the following notice is hereby provided pursuant to Section 1938(e) of the California Civil Code: A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises. In furtherance of and in connection with such notice: (i) Tenant, having read such notice and understanding Tenants right to request and obtain a CASp inspection, hereby elects not to obtain such CASp inspection and forever waives its rights to obtain a CASp inspection with respect to the Premises, Building and/or Project to the extent permitted by Legal Requirements; and (ii) if the waiver set forth in clause (i) hereinabove is not enforceable pursuant to Legal Requirements, then Landlord and Tenant hereby agree as follows (which constitute the mutual agreement of the parties as to the matters described in the last sentence of the foregoing notice): (A) Tenant shall have the one-time right to request for and obtain a CASp inspection, which request must be made, if at all, in a written notice delivered by Tenant to Landlord; (B) any CASp inspection timely requested by Tenant shall be conducted (1) at a time mutually agreed to by |
Landlord and Tenant, (2) in a professional manner by a CASp designated by Landlord and without any testing that would damage the Premises, Building or Project in any way, and (3) at Tenants sole cost and expense, including, without limitation, Tenants payment of the fee for such CASp inspection, the fee for any reports prepared by the CASp in connection with such CASp inspection (collectively, the CASp Reports) and all other costs and expenses in connection therewith; (C) the CASp Reports shall be delivered by the CASp simultaneously to Landlord and Tenant; (D) Tenant, at its sole cost and expense, shall be responsible for making any improvements, alterations, modifications and/or repairs to or within the Premises to correct violations of construction-related accessibility standards including, without limitation, any violations disclosed by such CASp inspection; and (E) if such CASp inspection identifies any improvements, alterations, modifications and/or repairs necessary to correct violations of construction-related accessibility standards relating to those items of the Building and Project located outside the Premises that are Landlords obligation to repair as set forth in the Lease, then Landlord shall perform such improvements, alterations, modifications and/or repairs as and to the extent required by Legal Requirements to correct such violations, and Tenant shall reimburse Landlord for the cost of such improvements, alterations, modifications and/or repairs within 10 business days after Tenants receipt of an invoice therefor from Landlord. |
8. | OFAC. Tenant is currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the OFAC Rules), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules. |
9. | Miscellaneous. |
a. | This First Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment may be amended only by an agreement in writing, signed by the parties hereto. |
b. | This First Amendment is binding upon and shall inure to the benefit of the parties hereto and their respective agents and assigns. |
c. | This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto. |
d. | Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, Broker) in connection with the transaction reflected in this First Amendment and that no Broker brought about this transaction, other than Cushman & Wakefield and Avison Young. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than Cushman & Wakefield and Avison Young, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this First Amendment. Landlord shall be responsible for all fees of Cushman & Wakefield and Avison Young arising out of the execution of this First Amendment in accordance with the terms of separate written agreement between Landlord, on the one hand, and Cushman & Wakefield and/or Avison Young, respectively, on the other hand. |
e. | Except as amended and/or modified by this First Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and the provisions of the Lease, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment. |
[Signatures are on the next page]
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the day and year first above written.
TENANT: | ||
AVIDITY BIOSCIENCES LLC, | ||
a Delaware corporation | ||
By: |
/s/ Kent Hawryluk | |
Its: |
Chief Business Officer | |
LANDLORD: | ||
ARE-10933 NORTH TORREY PINES, LLC, | ||
a Delaware limited liability company | ||
By: |
ALEXANDRIA REAL ESTATE EQUITIES, INC., | |
a Maryland corporation, managing member | ||
By: |
/s/ Gary Dean | |
Its: |
Gary Dean | |
Vice President | ||
RE Legal Affairs |
Exhibit A
Work Letter
THIS WORK LETTER dated June 27, 2017 (this Work Letter) is incorporated into that certain Lease Agreement dated as of March 31, 2014, and amended by that certain First Amendment to Lease of even date herewith (as amended, the Lease), by and between ARE-10933 NORTH TORREY PINES, LLC, a Delaware limited liability company (Landlord), and AVIDITY BIOSCIENCES LLC, a Delaware limited liability company (Tenant), formerly known as AVIDITY NANOMEDICINES LLC, a Delaware limited liability company. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.
1. | General Requirements. |
(a) Tenants Authorized Representative. Tenant designates Leigh Elkolli and Anneke Raney (either such individual acting alone, Tenants Representative) as the only persons authorized to act for Tenant pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (Communication) from or on behalf of Tenant in connection with this Work Letter unless such Communication is in writing from Tenants Representative. Tenant may change either Tenants Representative at any time upon not less than 5 business days advance written notice to Landlord. Neither Tenant nor Tenants Representative shall be authorized to direct Landlords contractors in the performance of Landlords Work (as hereinafter defined).
(b) Landlords Authorized Representative. Landlord designates Chris Clement and Eric Hedblad (either such individual acting alone, Landlords Representative) as the only persons authorized to act for Landlord pursuant to this Work Letter. Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or other Communication from or on behalf of Landlord in connection with this Work Letter unless such Communication is in writing from Landlords Representative. Landlord may change either Landlords Representative at any time upon not less than 5 business days advance written notice to Tenant. Landlords Representative shall be the sole persons authorized to direct Landlords contractors in the performance of Landlords Work.
(c) Architects, Consultants and Contractors. Landlord and Tenant hereby acknowledge and agree that: (i) DPR shall be the general contractor for the Tenant Improvements, (ii) DGA shall be the architect (the TI Architect) for the Tenant Improvements, and (iii) any subcontractors for the Tenant Improvements shall be selected by Landlord.
2. | Tenant Improvements. |
(a) Tenant Improvements Defined. As used herein, Tenant Improvements shall mean all improvements to the Premises of a fixed and permanent nature (including a fume hood) as shown on the TI Construction Drawings, as defined in Section 2(c) below. Other than the performance of Landlords Work (as defined in Section 3(a) below) and the payment of the TI Costs (as defined in Section 5(a) below) in accordance with the terms of this Work Letter, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenants use and occupancy.
(b) Tenants Space Plans. Landlord and Tenant acknowledge and agree that the plan prepared by the TI Architect attached to this Work Letter as Schedule 1 (the Space Plan) has been approved by both Landlord and Tenant. Landlord and Tenant further acknowledge and agree that any changes to the Space Plan requested by Tenant constitute a Change Request the cost of which changes shall be paid for by Tenant. Tenant shall be solely responsible for all costs incurred by Landlord to alter the Building as a result of Tenants requested Changes.
(c) Working Drawings. Landlord shall cause the TI Architect to prepare and deliver to Tenant for review and comment construction plans, specifications and drawings for the Tenant Improvements (TI Construction Drawings), which TI Construction Drawings shall be prepared substantially in accordance with the Space Plan. Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenants requirements for the Tenant Improvements. Tenant shall deliver its written comments on the TI Construction Drawings to Landlord not later than 7 days after Tenants receipt of the same; provided, however, that Tenant may not disapprove any matter that is substantially in accordance with the Space Plan without submitting a Change Request. Landlord and the TI Architect shall consider all such comments in good faith and shall, within 7 days after receipt, notify Tenant how Landlord proposes to respond to such comments (provided that any comments made in order to cause the TI Construction Drawings to be consistent with the Space Plan will be incorporated), but Tenants review rights and Landlords response to Tenants comments pursuant to the foregoing sentence shall not delay the design or construction schedule for the Tenant Improvements. Any disputes in connection with such comments shall be resolved in accordance with Section 2(d) hereof. Provided that the design reflected in the TI Construction Drawings is substantially in accordance with the Space Plan, Tenant shall approve the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request. Once approved by Tenant, subject to the provisions of Section 4 below, Landlord shall not materially modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section 3(b) below).
(d) Approval and Completion. Upon any dispute regarding the design of the Tenant Improvements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlords and Tenants positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable by Tenant to the extent such costs are in excess of Landlords budgeted cost for such item as such item is reflected on the Space Plan, and (iii) Tenants decision will not affect the base Building, structural components of the Building or any Building systems. In connection with any increase of the Landlords budgeted costs, Landlord shall provide Tenant with the amount of the specific line item increase together with backup information reasonably required to support Landlords budgeted costs for the applicable line item and the applicable line item increase but, for the avoidance of any doubt, in no event shall Landlord be required to provide Tenant with its budget. Any changes to the TI Construction Drawings requested by Tenant following Landlords and Tenants approval of same requested by Tenant shall be processed as provided in Section 4 hereof.
3. Performance of Landlords Work.
(a) Definition of Landlords Work. As used herein, Landlords Work shall mean the work of constructing the Tenant Improvements.
(b) Commencement and Permitting. Landlord shall commence construction of the Tenant Improvements upon obtaining a building permit (the TI Permit) authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Tenant. The cost of obtaining the TI Permit shall be payable by Landlord. Tenant shall assist Landlord in obtaining the TI Permit, at no material cost to Tenant. If any Governmental Authority having jurisdiction over the construction of Landlords Work or any portion thereof shall impose terms or conditions upon the construction thereof that: (i) are inconsistent with Landlords obligations hereunder, (ii) increase the cost of constructing Landlords Work, or (iii) will materially delay the construction of Landlords Work, Landlord and Tenant shall reasonably and in good faith seek means by which to mitigate or eliminate any such adverse terms and conditions, at no material cost to Tenant. Notwithstanding anything to the contrary contained herein, Tenant acknowledges that Tenant has requested that Landlord commence performing Landlords Work in December 2017, in accordance with the Schedule attached hereto as Schedule 2 (the Schedule), and further acknowledges and agrees that there may be delays in the Substantial Completion of Landlords Work resulting from Landlords Work being performed in the month of December due to holiday schedules of third parties including, without limitation, Governmental Authorities having inspection rights over Landlords Work.
(c) Completion of Landlords Work. Landlord shall substantially complete or cause to be substantially completed Landlords Work in a good and workmanlike manner, in accordance with the TI Permit and applicable Legal Requirements subject, in each case, to Minor Variations and normal punch list items of a non-material nature that do not interfere with the use of the Premises (Substantial Completion or Substantially Complete). Upon Substantial Completion of Landlords Work, Landlord shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (AIA) document G704. For purposes of this Work Letter, Minor Variations shall mean any modifications reasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comply with any request by Tenant for modifications to Landlords Work; (iii) to comport with good design, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments for field deviations or conditions encountered during the construction of Landlords Work.
(d) Selection of Materials. Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Landlord and Tenant, the option will be selected at Landlords reasonable discretion. As to all building materials and equipment that Landlord is obligated to supply under this Work Letter, Landlord shall select the manufacturer thereof in its reasonable discretion, provided that all such materials and equipment shall be consistent with the existing Building standard materials and equipment.
(e) Delivery of the Tenant Improvements. When Landlords Work is Substantially Complete, subject to the remaining terms and provisions of this Section 3(e), Tenant shall accept the Tenant Improvements. Tenants taking possession and acceptance of the Tenant Improvements shall not constitute a waiver of: (i) any warranty with respect to workmanship (including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Landlords Work with applicable Legal Requirements, or (iii) any claim that Landlords Work was not completed substantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as are permitted hereunder) (collectively, a Construction Defect). Tenant shall have one year after Substantial Completion within which to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter. Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlords reasonable efforts, fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall have no further obligation with respect to such Construction Defect other than to cooperate, at no cost to Landlord, with Tenant should Tenant elect to pursue a claim against such contractor.
(f) Warranties. Tenant shall be entitled to receive the benefit of all construction warranties and manufacturers equipment warranties relating to equipment installed in the Premises pursuant to this Work Letter. If requested by Tenant, Landlord shall attempt to obtain extended warranties from manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely by Tenant. Landlord shall promptly undertake and complete, or cause to be completed, all punch list items.
4. Changes. Any changes requested by Tenant to the Tenant Improvements after the date of this Work Letter shall be requested and instituted in accordance with the provisions of this Section 4 and shall be subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned or delayed.
(a) Tenants Request For Changes. If Tenant shall request changes to the Tenant Improvements (Changes), Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a Change Request), which Change
Request shall detail the nature and extent of any such Change. Such Change Request must be signed by Tenants Representative. Landlord shall, before proceeding with any Change, use commercially reasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of: (i) the time it will take, and (ii) the architectural and engineering fees and costs that will be incurred, to analyze such Change Request (which costs shall be paid by Tenant to the extent actually incurred, whether or not such change is implemented). Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of the Change Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), an analysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the period of time, if any, that the Change will extend the date on which Landlords Work will be Substantially Complete. Any such delay in the completion of Landlords Work caused by a Change, including any suspension of Landlords Work while any such Change is being evaluated and/or designed, shall be a delay caused by Tenant.
(b) Implementation of Changes. If Tenant: (i) approves in writing the cost or savings and the estimated extension in the time for completion of Landlords Work, if any, and (ii) deposits with Landlord any Excess TI Costs required in connection with such Change, Landlord shall cause the approved Change to be instituted. Notwithstanding any approval or disapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architects determination of the delay caused by Tenant in connection with such Change shall be final and binding on Landlord and Tenant.
5. Costs.
(a) TI Costs. Landlord shall be responsible for the payment of design, permits and construction costs in connection with the construction of the Tenant Improvements, including, without limitation, the cost of preparing the TI Construction Drawings and the Space Plan and Landlords out-of -pocket expenses (collectively, TI Costs). Notwithstanding anything to the contrary contained herein, in no event shall Landlord be required to pay for any furniture, personal property or other non-Building system materials or equipment, including, but not limited to, Tenants voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Tenant Improvements.
(b) Excess TI Costs. Notwithstanding anything to the contrary contained herein, Tenant acknowledges and agrees that Landlord shall have no responsibility for any costs arising from or related to Tenants changes to the Space Plan or TI Construction Drawings, delays caused by Tenant (provided that Tenants request that the construction of Landlords Work not commence until December 2017 as reflected in the Schedule shall not be deemed a delay caused by Tenant for the purposes of this Section), the cost of Changes and Change Requests (collectively, Excess TI Costs). Tenant shall deposit with Landlord, as a condition precedent to Landlords obligation to complete the Tenant Improvements, 100% of the Excess TI Costs. If Tenant fails to deposit any Excess TI Costs with Landlord within 15 days after Landlords delivery to Tenant of an invoice therefor, Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge). For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease.
6. Tenant Access.
(a) Tenants Access Rights. Landlord and Tenant acknowledge that, pursuant to the terms of the Lease, Tenant is occupying the Premises during the construction of the Tenant Improvements. Tenant shall have the right to continue to occupy the Premises (except those portions of the Premises in which Tenant Improvements are being constructed while Tenant Improvements are being constructed in such portions), at Tenants sole risk and expense, during the construction of the Tenant Improvements; provided, however, that Tenants occupancy shall be coordinated with the TI Architect and the general contractor and shall be subject to Tenants compliance with (i) applicable Legal Requirements, and (ii) all other reasonable restrictions which Landlord, the TI Architect or the general contractor may impose. Tenant shall cooperate with Landlord in connection with the performance of the Tenant Improvements.
(b) No Interference. Neither Tenant nor any Tenant Party (as defined in the Lease) shall interfere with the performance of Landlords Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities, and upon any such interference, Landlord shall have the right to exclude Tenant and any Tenant Party from the portions of the Premises in which Landlords Work is being performed until Substantial Completion of Landlords Work.
7. Miscellaneous.
(a) Consents. Whenever consent or approval of either party is required under this Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval, unless expressly set forth herein to the contrary.
(b) Modification. No modification, waiver or amendment of this Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.
Schedule 1
Space Plan
Exhibit F
Tenants Personal Property
| 11 whiteboards |
| 2 corkboards |
| 2 TVs |
| Ice machine |
| Autoclave |
| Dishwasher |
| Flammable cabinet |
| Nitrogen control manifold |
| CO2 control manifold |
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